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
ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2004
o 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 of incorporation or organization) | (IRS Employer 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 ý No o
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. o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ý No o
The approximate aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was $159,885,000 as of June 30, 2004 (the last business day of the registrant’s most recently completed second fiscal quarter). For purposes of determining this number, 16,416,341 shares of common stock held by affiliates as of June 30, 2004 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 9, 2005, the registrant had 95,358,215 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, 2005 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
| (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, 2005 pursuant to
Regulation 14A of the General Rules and Regulations under the Securities Exchange
Act of 1934, as amended. |
2
Table of Contents
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:
The
Company does not undertake to update any forward-looking statements.
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.
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 dedicated to
the identification, development and commercialization of novel drugs for cancer and
related diseases. Our research portfolio consists of two major areas of focus:
The
DNA/RNA Medicines program includes drugs that are based on technologies known as
antisense, decoys and RNA interference. The Company’s lead drug from this
program is an investigational antisense compound known as Genasense® (oblimersen
sodium injection). Genasense® 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® has displayed some anticancer activity when used by itself, the
Company is developing the drug primarily as a means of amplifying the cytotoxic
effects of other anticancer treatments.
Genasense® has been studied in combination with a wide variety of anticancer drugs in a number of different cancer indications. Three randomized Phase 3 trials of Genasense® have been completed in malignant melanoma, chronic lymphocytic leukemia (CLL), and multiple myeloma. Under its own sponsorship or in collaboration with the U.S. National Cancer Institute (NCI), Genta is currently conducting a number of additional trials.
In May
2004, the Company’s New Drug Application (NDA) for Genasense®
plus chemotherapy in malignant melanoma failed to gain a majority vote for marketing
approval by the Oncology Drug Advisory Committee (ODAC) of the U.S. Food and
Drug Administration (FDA). Genta subsequently withdrew the NDA from further
consideration. The Company has continued long-term follow-up of patients who
were enrolled into the melanoma trial. Genta is conducting additional analyses
of those data and expects to provide an update of these results in 2005. The Company is also exploring
the feasibility of filing similar regulatory applications in the European Union.
In December 2004, the Company released initial results from its other Phase 3 trials. The trial in multiple myeloma failed to meet endpoints that would be sufficient for regulatory approval. The trial in CLL met its primary endpoint of significantly increasing the proportion of patients who achieved a complete or nodular partial remission, as determined by blinded expert review of clinical data and bone marrow biopsies. A significant increase in disease-free survival was also observed. No difference was observed in overall response rate, time-to-disease progression, or overall survival. Adverse events (irrespective of relation to study drugs) during treatment or within 30 days from last dose of treatment that resulted in death occurred in 9 patients treated with Genasense® plus chemotherapy compared with 5 patients treated with chemotherapy alone. The percentage of patients who experienced serious adverse events was increased in the Genasense® arm; however, the percentages of patients who discontinued treatment due to adverse events were equal in the treatment arms. The incidence of certain serious adverse reactions, including but not limited to nausea, fever and catheter-related complications, was increased in patients treated with Genasense®.
Genta
is currently conducting additional analyses of data from this trial and is exploring
the feasibility of filing a NDA for this indication based on existing data.
Such an application would be filed using the “Fast Track” designation
previously granted by the FDA, which allows approval of a drug based on a surrogate
endpoint that is reasonably likely to be predictive of clinical benefit. Approval
under this mechanism is contingent upon a company conducting one or more additional
trials that would conclusively document that benefit. The Company is also exploring
the feasibility of filing similar regulatory applications in the European Union.
4
In
April 2002, we entered into a series of agreements with Aventis, a member of
the sanofi-aventis Group (“Aventis”), regarding the development and
commercialization of Genasense®. On November 8, 2004, the Company received from
Aventis a notice of termination of these agreements. Pursuant to those agreements,
Aventis is required to fund substantial portions of the development costs of Genasense® until
May 8, 2005. Genta has initiated discussions with other potential marketing and
development partners for Genasense®.
The
Company has two additional programs in the DNA/RNA Medicines program. The first
is an antisense drug (LR3001) directed against an oncogene called c-myb. LR3001
has been tested in a clinical Phase 1 trial, and the Company is currently seeking
to restart that study, which is currently being sponsored by an independent
investigator. The second is a drug called the CRE-BP Decoy, which remains in
the laboratory testing stage.
The
Small Molecules Program currently includes drugs that are based on
gallium-containing compounds. The lead drug from this Program is Ganite® (gallium
nitrate injection), which was approved by FDA in October 2003 for the treatment of
cancer-related hypercalcemia that is resistant to hydration. In Phase 2 studies,
Ganite® has been reported to demonstrate direct anticancer activity,
particularly in patients with malignant lymphoma and bladder cancer. Following
the adverse outcome of the ODAC meeting in May 2004 for Genasense®, the
Company markedly reduced spending on the development, sale and marketing of
Ganite® resulting in significantly lower sales of Ganite®. A number of side
effects have been reported related to treatment with Ganite®. These side effects
are described in the Product Insert for the drug. Genta has also been engaged in
developing new formulations of gallium-containing compounds that may be orally
absorbed; to date, however, these efforts have not yielded a compound that the Company
has advanced into late-stage preclinical testing.
The
Company seeks to acquire additional drugs in these two Programs that will enhance the
value of its pipeline to shareholders.
B. Summary of
Business and Research and Development Programs
Our
goal is to establish Genta as a biopharmaceutical leader and preferred partner in the
oncology market and as direct marketers of our products in the United States. Our key
strategies in this regard are:
Build
on our core competitive strength of oncology development expertise to establish a
leadership position in providing biopharmaceutical products for the treatment of cancer. |
Expand
our pipeline of products in two therapeutic categories, DNA/RNA Medicines and Small
Molecules, through internal development, licensing and acquisitions. |
Establish
our lead antisense compound, Genasense®, as the preferred chemosensitizing drug for
use in combination with other cancer therapies in a variety of human cancer types. |
Establish
a sales and marketing presence in the U.S. oncology market. |
Research
and Development Programs
DNA/RNA
Medicines
A
number of technologies have been developed using modifications of DNA or RNA. These
agents have been used as scientific tools for laboratory use to identify gene
function, as diagnostic probes to evaluate diseases, and – more recently
– as potential drugs to treat human diseases. Collectively, these technologies
include methods known as antisense, RNA interference, decoys and gene therapy.
Founded in 1988, Genta was one of the first companies established to exploit these new
technologies for use as potential drugs and we remain broadly committed to
research and development of these compounds with a specific focus on cancer
medicine (oncology). Our most advanced drugs in our DNA/RNA Medicines Program
involve the use of antisense technology.
5
Antisense
Technology
Most
of a cell’s functions, including whether the cell lives or dies, are carried
out by proteins. The genetic code for a protein is contained in DNA, which is made
up of bases known as 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 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, or 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. Genta’s lead
antisense compound, Genasense®, is an antisense oligo that is designed to block the
production of Bcl-2.
We
have devoted significant resources towards the development of antisense oligos that
contain a phosphorothioate backbone, which is the nucleotide chain comprised of ribose
and phosphate groups. However, we also have patents and technologies covering
later generation technologies that involve mixed backbone structures, as well
as sterically fixed chemical bonds, that may further enhance the molecule’s
ability to bind to the intended target. Moreover, we have developed certain
formulations that can be used to more efficiently increase the uptake of oligos
into cells. Some of these advanced technologies may be incorporated into future
products from our DNA/RNA Medicines Program.
Genasense®
as a Regulator of Apoptosis (“Programmed Cell Death”)
The
programmed death of cells, also known as apoptosis, is necessary to
accommodate the billions of new cells that are produced daily and also to eliminate
aged or damaged cells. However, abnormal regulation of the apoptotic process can
result in disease.
Cancer
is commonly associated with the over- or under-production of many types of
proteins. These proteins may be directly cancer-causing (i.e., “oncogenic”)
or they may contribute to the malignant nature of cancer (for instance, by
increasing the longevity of cancer cells or making them more likely to spread
throughout the body). The ability to selectively halt the production of certain
proteins may make the treatment of certain diseases more effective. Apoptosis is
regulated by a large number of proteins, particularly members of the Bcl-2 protein
family. In an effort to make existing cancer therapy more effective, Genta is
developing Genasense® to target and block the production of Bcl-2, a protein
that is central to the process of apoptosis.
Bcl-2
as an Inhibitor of Programmed Cell Death |
Normally,
when a cancer cell is exposed to treatment, such as 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 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 major hematologic cancers such as lymphomas, myeloma, and leukemia,
and solid tumors such as melanoma and cancers of the lung, colon, breast and
prostate. In these diseases, Bcl-2 inhibits the release of cytochrome C that would
ordinarily be triggered by cancer therapy. Thus, Bcl-2 appears to be a major
contributor to both inherent and acquired resistance to cancer treatments.
Overcoming resistance to chemotherapy poses a major challenge for cancer treatment.
In
cancer cells, Bcl-2 inhibits the process of programmed cell death, thereby
allowing cells to survive for much longer than normal cells. Genasense® has been
developed as a chemosensitizing drug to block production of Bcl-2, thereby
dramatically increasing the sensitivity of cancer cells to standard cancer treatment.
6
Genasense®
Genasense® has
been designed to block the production of Bcl-2. Current science suggests that
Bcl-2 is a fundamental cause of the inherent resistance of cancer cells to current
cancer treatments, such as chemotherapy, radiation or monoclonal antibodies.
Blocking Bcl-2, therefore, may enable cancer treatments to be more effective. While
Genasense® has displayed some anticancer activity when used by itself, we believe
the drug can be optimally used as a means of amplifying the effectiveness of other
cancer therapies, most of which function by triggering apoptosis, which as noted
is relatively blocked in cancer cells to over-production of Bcl-2.
Overview of
Preclinical and Clinical studies of Genasense®
Preclinical
Studies
A
number of pre-clinical studies in cell lines and in animals have shown enhancement of
tumor cell killing when Bcl-2 antisense was used in combination with standard
cancer therapies, including anti-metabolites, alkylating agents, corticosteroids,
other cytotoxic chemotherapy, radiation and monoclonal antibodies. Several studies have
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 programmed cell death. These studies include human
lymphoma, melanoma, breast cancer and prostate cancers, which were treated with
Genasense® in combination with cyclophosphamide, dacarbazine, docetaxel and
paclitaxel, respectively.
Clinical
Studies
Genasense® has
been in clinical trials since 1995 in both the United States and Europe. We
currently have efficacy and safety data on over 1,400 patients in Phase 1, Phase 2 or
Phase 3 clinical trials. These studies have been conducted in patients with a wide
variety of tumor types, including advanced malignant melanoma, several types of
leukemia, non-Hodgkin’s lymphoma (NHL) and cancers of the prostate, colon,
lung, breast and other tumor types. Since 2001, Genta and the National Cancer
Institute (NCI) have jointly approved the initiation of approximately twenty clinical
trials. In addition to making Genasense® available to more physicians and
patients, these trials allow us to evaluate Genasense® in certain diseases (and
in combination with other chemotherapy drugs) that would otherwise be outside our
initial priorities for clinical development. The overall results of clinical trials
performed to date suggest that Genasense® can be administered to cancer patients
with acceptable side-effects, and that such treatment may reduce the level of Bcl-2
protein in cancer cells.
7
The
following chart sets forth the progress of our clinical trials with respect to various
potential indications for Genasense®:
| Indication | Status |
| Malignant Melanoma | Phase 3 completed; NDA filed; On May 3, 2004, the FDA Oncology Drugs Advisory Committee voted not to recommend; NDA withdrawn; analysis of data continues |
| Chronic Lymphocytic Leukemia | Phase 3 completed; results of trial met primary endpoint; analysis of data continues |
| Multiple Myeloma | Phase 3 completed; trial did not meet primary endpoint |
| Acute Myelocytic Leukemia | Phase 3 (randomized) |
| Non-Small-Cell Lung Cancer | Phase 2 (randomized), fully enrolled |
| Prostate Cancer | Phase 2 (randomized) |
| Small-Cell Lung Cancer | Phase 2 (randomized), fully enrolled |
| Breast Cancer | Phase 1-2 |
| Colorectal Cancer | Phase 1-2 |
| non-Hodgkin’s lymphoma | Phase 1-2 and Phase 2 |
| Kidney Cancer | Phase 2 |
| Pancreatic Cancer (and other solid tumors) | Phase 1-2 |
| Waldenstrom’s macroglobulinemia | Phase 1-2 |
| Hepatocellular Carcinoma | Phase 1-2 |
| Childhood Solid Tumors | Phase 1 |
Highlights
of the randomized trials sponsored directly by the Company follow:
Phase
3 Trial of Genasense® Plus Chemotherapy in Patients with Malignant Melanoma
In
late 2003, we filed an NDA for Genasense® to be used in combination with
dacarbazine for the treatment of patients with melanoma who had not previously
received chemotherapy. The FDA accepted our NDA filing on February 5, 2004 and granted
“Priority Review” status to the application, which targeted an agency
action on or before June 8, 2004. On February 10, 2004, we were invited by the FDA
to meet on May 3, 2004 with ODAC. On May 3, 2004 we presented results of our
Phase 3 trial of Genasense® in combination with dacarbazine versus dacarbazine
alone to the ODAC. A majority of the committee members voted that the increased
number of clinical responses were indicative of the clinical activity of Genasense® in
melanoma. However, in the absence of increased survival, a majority of the
committee members voted that the evidence presented did not provide substantial
evidence of effectiveness, as measured by response rate and progression-free
survival, to outweigh the increased toxicity of administering Genasense® for
the treatment of patients with metastatic melanoma who have not received prior
chemotherapy. On May 13, 2004 the Company announced that it had withdrawn its NDA.
Genta continues to track data from patients enrolled in this trial and to analyze its
results. The Company expects to present updated information from this trial in
2005. The Company is currently reviewing the possibility for filing the updated data
for marketing approval in Europe. The Company has not yet determined what, if any,
additional clinical trials may be undertaken with Genasense® in patients with
melanoma.
8
Phase
3 Trial of Genasense® Plus Chemotherapy in Patients with Chronic Lymphocytic
Leukemia
In
November 2004, the Company reported results from a randomized Phase 3 clinical trial
of Genasense® in patients with relapsed or refractory chronic lymphocytic
leukemia (CLL). Patients were eligible for this trial if they had failed standard
treatment for CLL that had included fludarabine. Two hundred forty one patients were
randomized to receive standard chemotherapy with fludarabine and cyclophosphamide
with or without Genasense®. The primary objective of the study was to evaluate
whether the addition of Genasense® would increase the proportion of patients who
attained major objective responses (defined as complete remission or a nodular
partial remission), as determined by review of clinical data and bone marrow
biopsies using experts who were blinded as to treatment assignment. Analysis of
study results has shown that the addition of Genasense® to chemotherapy was
associated with a statistically significant increase in the major objective response
rate compared with the rate observed in patients who were treated with
chemotherapy alone. A significant increase in disease-free survival was also
observed. No difference was observed in overall response rate, time-to-disease
progression, or overall survival. The incidence of certain serious adverse
reactions, including but not limited to nausea, fever and catheter-related
complications, was increased in patients treated with Genasense®. Adverse
events (irrespective of relation to study drugs) during treatment or within 30 days
from last dose of treatment that resulted in death occurred in 9 patients treated with
Genasense® plus chemotherapy compared with 5 patients treated with chemotherapy
alone. The percentage of patients who experienced serious adverse events was
increased in the Genasense® arm; however, the percentages of patients who
discontinued treatment due to adverse events were equal in the treatment arms.
Genta
plans to discuss the feasibility of submitting an NDA for “Accelerated Approval” based
on this data with the FDA. The CLL trial has both “Fast Track” and “Orphan
Drug” designations from the FDA. The Company is also exploring the feasibility of filing similar
regulatory applications in the European Union.
In
mid-2004, the Company became aware of an episode of employee misconduct that
involved an unauthorized attempt by the employee to analyze data from the Company’s
Phase 3 trial of Genasense® in patients with CLL. The episode, which was undertaken
prior to assessment of the external expert clinical review of response, was fully
investigated by the Company and the Company reported the incident to the FDA. While
there can be no assurance, the Company does not currently believe this episode will
have a material impact on the analysis or interpretation of the study results, nor
that it will affect whether or not the Company will receive marketing approval for
Genasense® in CLL.
Phase
3 Trial of Genasense® Plus Chemotherapy in Patients with Multiple Myeloma
In
November 2004, Genta reported that the Company's randomized Phase 3 clinical
trial of Genasense® in patients with multiple myeloma did not meet its primary
endpoint. The trial had been designed to evaluate whether the addition of
Genasense® to standard therapy with high-dose dexamethasone could increase the
time to development of progressive disease in patients who previously had received
extensive therapy. Based on the results of the Phase 3 trial, the Company has no
plans to submit an NDA in this indication at the current time. The Company has not
yet determined what additional clinical trials, if any, may be undertaken in patients
with multiple myeloma.
Other
Trials
Other
randomized trials are being conducted by either the Company or by oncology
cooperative groups. These trials materially differ from previous studies noted above
in that they were not prospectively reviewed by FDA for registration suitability
prior to initiation. Details of these trials are as follows:
A
large U.S. cooperative oncology group, the Cancer and Leukemia Group B (CALGB) is
running a Phase 3 trial in patients with acute myelocytic leukemia (AML) over the
age of 60 who have not previously received chemotherapy. All patients in this trial
receive standard chemotherapy with daunorubicin and cytarabine and they are
randomly assigned to receive additional treatment with Genasense® or no other
treatment. This trial is currently projected to enroll up to approximately 500
patients. As yet, the CALGB has not released expectations for enrollment
completion. While the primary endpoint is overall survival, a variety of secondary
endpoints (such as complete remission rate and remission duration) will be
sequentially examined during the conduct of this trial.
9
During
June 2004, Genta completed enrollment in a randomized Phase 2 trial of Genasense® plus
docetaxel in patients with non-small cell lung cancer. Patients who met a variety of
eligibility criteria and who had failed front-line platinum-containing chemotherapy
were eligible. Patients were randomly assigned to receive a standard dose of docetaxel
with or without Genasense®. A total of 298 patients were enrolled into this study.
The primary endpoint of the study was to increase overall survival in patients treated
with Genasense® plus chemotherapy compared with patients treated with chemotherapy
alone. Key secondary endpoints include comparisons of progression-free survival and
objective response.
Two
oncology cooperative groups, including the European Organization for Research
and Treatment of Cancer (EORTC) and the CALGB, are conducting exploratory randomized
trials, as follows:
During
the fourth quarter of 2004, the CALGB completed enrollment in a randomized trial of
Genasense® in patients with small cell lung cancer. The trial evaluates patients
with extensive disease who have not previously received chemotherapy. The trial
includes approximately 55 patients and randomly assigns patients to receive Genasense® plus
chemotherapy with carboplatin and etoposide or chemotherapy alone. The endpoint of the
trial is to determine the proportion of patients who have survived at least twelve
months from the date of randomization. Data from this trial are expected to be
available in 2006.
The
EORTC is conducting a randomized study of Genasense® in patients with
hormone-refractory prostate cancer who have not previously received chemotherapy.
In this study, all patients receive standard therapy with docetaxel and are randomly
assigned to receive Genasense® or no other treatment. The current sample size is
projected at 102 patients; the primary objective is to compare response rates of
prostate specific antigen (PSA).
In
addition to these randomized trials, the Company, either under its own sponsorship or
in collaboration with the NCI is also conducting a number of non-randomized clinical
trials in patients with various types of cancer.
For
additional background information on the drug application process and clinical
trials, see “Government Regulation”.
Ganite®
Ganite®
as a Treatment for Cancer-Related Hypercalcemia |
On
October 6, 2003, we began marketing Ganite® for the treatment of cancer-related
hypercalcemia. Ganite® is our first drug to receive marketing approval.
Hypercalcemia
is a life-threatening condition caused by excessive buildup of calcium in the
bloodstream, which may occur in up to 20% of cancer patients. Gallium nitrate was
originally studied by the NCI as a new type of cancer chemotherapy. More than 1,000
patients were treated in Phase 1 and Phase 2 trials, and the drug showed promising
antitumor activity against NHL, bladder cancer and other diseases. In the course of
these studies, gallium nitrate was also shown to strongly inhibit bone resorption.
Gallium nitrate underwent additional clinical testing and was approved by the FDA in
1991 as a treatment for cancer-related hypercalcemia. Lower doses of Ganite® were
also tested in patients with less severe bone loss, including bone metastases, a
cancer that has spread to bone, Paget’s disease, an affliction of older patients
that causes pain and disability, and osteoporosis.
Side
effects of Ganite® include nausea, diarrhea and kidney damage. (A complete
listing of Ganite®’s side effects is contained in the product’s Package
Insert that has been reviewed and approved by the FDA.) .
The
extension for an important patent covering the use of Ganite® for its approved
indication will expire in April 2005. Genta has filed patent applications seeking
additional patent protection for Ganite®.
In
May 2004, the Company eliminated its sales force and significantly reduced its
marketing support for Ganite®. After evaluating various options, we decided
during the third quarter of 2004 to continue selective marketing support of the
product. In December 2004, a wholesaler contacted the Company to return a
significant portion of its inventory of Ganite®. The Company agreed to the return
of this product and recorded a provision for sales returns, as well as provided for
potential returns from other wholesalers. Our provision for sales returns increased
by $1.2 million in 2004.
10
Ganite®
as a Treatment for Non-Hodgkin’s Lymphoma and Other Cancer Types |
Based
on previously published data, we believe that Ganite® may also be a useful
treatment for patients with certain types of cancer, particularly non-Hodgkin’s
lymphoma (NHL). Approximately 54,000 new cases of NHL are diagnosed in the United
States each year. We have been granted an investigational new drug exemption, or
IND, and we have commenced clinical trials of Ganite® for the treatment of
patients with relapsed NHL. In December 2004, we announced the results of a Phase 2
clinical trial in patients with NHL. The results showed that Ganite® displayed
antitumor activity in patients with various types of advanced NHL who had failed to
respond or had relapsed from other types of treatment. However, the use of Ganite® for
these indications entailed the use of higher doses than were used in the hypercalcemia
trials and as a result, an increased number of serious adverse events were
recorded in this trial. In particular, several patients experienced optic neuritis
and optic atrophy associated with visual loss, along with other side effects. As
a result of the cost savings actions announced in May 2004, spending on the
clinical development of Ganite® as a chemotherapy agent was also reduced. When
sufficient resources become available, we may resume clinical development of Ganite® in
NHL and other indications by initiating new clinical trials. Previous clinical
trials of Ganite® showed that the drug has not been associated with significant
myelosuppression, a decrease of bone marrow activity often associated with cancer
therapy, which can cause increased susceptibility to bleeding and infection. We
believe this feature may allow Ganite® to be incorporated into combination
chemotherapy regimens that employ other drugs that cause myelosuppression,
thereby potentially increasing the utility of such therapy for patients.
Other
Pipeline Products and Technology Platforms
Oral
Gallium
For
several years, we have been attempting to develop novel formulations of
gallium-containing compounds that can be taken orally. Such formulations might be
useful for diseases in which long-term low-dose therapy is deemed desirable, such
as bone metastases, Paget’s disease and osteoporosis. Such patients are commonly
afflicted by bone pain and susceptibility to fractures. To date, a suitable
oral formulation that would be available for clinical development has not yet been
identified.
Decoys
In
addition to antisense compounds from the DNA/RNA Medicines Program, we have
explored the development of compounds known as “decoys” that are short
strands of DNA or RNA which bind proteins known as transcription factors. Normally,
transcription factors bind to specific portions of DNA known as response elements
and regulate 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 decoys, these decoys compete with normal DNA response elements to bind
transcription factors and inactivate them. By selectively inactivating the
transcription factor, the function of the gene can be regulated in a positive or
negative manner. This type of control could potentially be used to regulate genes
that are critically involved in the cause, metastasis, or progression of cancer.
In
December 2000, Genta licensed patents and technology relating to decoys from the
National Institutes of Health (“NIH”). This technology targets a
transcription factor known as the cyclic adenosine monophosphate response element
binding protein, or CRE-BP. Pre-clinical studies conducted at the NIH have shown broad
anticancer activity for this compound, with very low toxicity to normal cells.
Due to the financial constraints described above, the Company has sharply reduced
current spending on the Decoy program and is currently reviewing whether or not
to retain this compound within its research portfolio.
11
c-myb
Antisense
In
December 2004, Genta acquired worldwide rights from Temple University to
intellectual property and technology and a novel antisense compound (LR3001)
that targets c-myb, a central gene that regulates the growth of cancer cells.
LR3001 has been tested in two Phase 1 clinical trials at the University of
Pennsylvania in patients with drug-resistant myeloid leukemia. To date, clinical
investigations have been supported by grants from the NIH, including the Rapid Access
to Investigational Drugs (RAID) program. Genta has submitted a request for
designation of LR3001 as an Orphan Drug for the treatment of chronic myelocytic
leukemia (CML) to the FDA, and notice of this designation was received in
February 2005. The Company is currently working with the lead investigator to
re-qualify a substantial inventory of LR3001, which – if successful – should
be sufficient to complete the Phase 1 program. Following completion of Phase 1,
the Company will then decide whether or not to take LR3001 into Phase 2 clinical
trials. Based on the biology of c-myb, potential target diseases for LR3001
include CML, neuroblastoma and cancer of the breast and colon, among other conditions.
Antisense
and RNAi Research and Discovery
We
have had several other oligonucleotide-based discovery programs and collaborations
devoted to the identification of both antisense- and RNAi-based inhibitors of oncology
gene targets. However, spending on these research programs was sharply reduced
due to financial constraints previously mentioned. The Company has no current
agents that it considers “lead compounds” that would justify their being
advanced into late-stage pre-clinical testing.
We
intend to continue to evaluate novel nucleic acid chemistries, through sponsored
research and collaborative agreements, depending upon the availability of resources.
Patents
and Proprietary Technology
It
is our policy to protect our technology by filing patent applications with
respect to technologies important to our business development. To maintain our
competitive position, we also rely upon trade secrets, unpatented know-how,
continuing technological innovation, licensing opportunities and certain regulatory
approvals (such as orphan drug designations).
We
own or have licensed several patents and applications to numerous aspects of
oligonucleotide technology, including novel compositions of matter, methods of
large-scale synthesis, methods of controlling gene expression and methods of
treating disease. Genta’s patent portfolio includes approximately 90 granted
patents and 105 pending applications in the U.S. and foreign countries. Genta
endeavors to seek appropriate U.S. and foreign patent protection on its
oligonucleotide technology.
Genta
has licensed seven U.S. patents relating to Genasense® and its backbone
chemistry that expire between 2008 and 2015 and three pending U.S. patent
applications that relate to Genasense®. Corresponding patent applications
have been filed in three foreign countries. Genta also owns three U.S. patent
applications relating to methods of using Genasense® that expire in 2020, with
approximately 45 corresponding foreign patent applications.
Included
among Genta’s property rights are certain rights licensed from the NIH covering
phosphorothioate oligonucleotides. We also acquired from the University of
Pennsylvania exclusive rights to antisense oligonucleotides directed against the
Bcl-2 mRNA, as well as methods of their use for the treatment of cancer. In 1998,
two U.S. patents were issued encompassing our licensed antisense oligonucleotide
compounds targeted against the Bcl-2 mRNA and the use of these compounds
outside of organisms. These claims cover our proprietary antisense oligonucleotide
molecules, which target the Bcl-2 mRNA including Genasense®. Other related
U.S. and corresponding foreign patent applications are still pending.
The
patent covering the use of Ganite® for its approved indication will expire in April
2005. Genta has filed patent applications seeking additional patent protection for
Ganite®.
12
The
patent positions of biopharmaceutical and biotechnology firms, including Genta, can
be uncertain and can involve complex legal and factual questions. Consequently,
even though we are currently prosecuting our patent applications with the United
States and foreign patent offices, we do not know whether any of our 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. Even if issued, patents may be circumvented or
challenged and invalidated in the courts. Because some applications in the
United States are kept in secrecy until an actual patent issues, we cannot be certain
that others have not filed patent applications directed at inventions covered by
our pending patent applications, or that we were the first to file patent
applications for such inventions. Thus, we may become involved in interference
proceedings declared by the U.S. Patent and Trademark Office (or comparable foreign
office or process) in connection with one or more of our patents or patent applications
to determine priority of invention, which could result in substantial costs to us, as
well as an adverse decision as to priority of invention of the patent or patent
application involved.
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 ours. Accordingly, there can be no assurances
that our patent applications will result in issued patents or that, if issued, the
patents will afford protection against competitors with similar technology. We
cannot provide assurance that any patents issued to Genta will not be infringed or
circumvented by others, nor can there be any assurance that we will obtain necessary
patents or technologies or the rights to use such technologies.
We
also rely upon unpatented trade secrets. No assurances can be given as to whether
third parties will independently develop substantially equivalent proprietary
information and techniques, or gain access to our trade secrets, or disclose such
technologies to the public, or that we can meaningfully maintain and protect
unpatented trade secrets.
We
require our employees, consultants, outside scientific collaborators, sponsored
researchers and other advisors to execute confidentiality agreements with us. 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, Genta. There can be no assurance, however, that
these agreements will provide meaningful protection to our trade secrets, or
guarantee adequate remedies in the event of unauthorized use or disclosure of
confidential proprietary information, or in the event of an employee’s refusal to
assign any patents to Genta in spite of his/her contractual obligation.
Research
and Development
In
addition to our current focus in the areas described above, we continually evaluate
our programs in light of the latest market information and conditions, the
availability of third-party funding, technological advances and other factors. As
a result of such evaluations, we change our product development plans from time to
time and anticipate that we will continue to do so. In August 2004, Genta closed of
its research facility in Salt Lake City, which had originated from the August 2003
acquisition of Salus Therapeutics, Inc. We recorded research and development
expenses of $71.5 million, $83.1 million, and $87.2 million during the years ended
December 31, 2004, 2003 and 2002, respectively.
Sales
and Marketing
In
May 2004, the Company initiated a series of steps that are designed to conserve
cash in order to focus on Genasense®. The Company reduced its workforce by 85
employees, including the elimination of its sales force.
Either
alone or in partnerships with other companies, we intend to be a direct marketer or
co-marketer of our pharmaceutical products by rebuilding a sales and marketing
infrastructure in the United States to launch and fully realize the commercial
potential of our products if approved by the FDA. For international product sales,
we intend to distribute our products through collaborations with third parties.
13
Manufacturing
and Raw Materials
Our
ability to conduct clinical trials on a timely basis, to obtain regulatory
approvals and to commercialize our products will depend in part upon our ability to
manufacture our 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 regulations.
We
currently rely on third parties to manufacture our products. In December 2002, we
signed a five-year manufacturing and supply agreement with Avecia Biotechnology,
Inc., or Avecia, a leading multinational manufacturer of pharmaceutical products,
to supply quantities of Genasense®. This agreement is also renewable beyond
the initial five-year period. We are not obligated to purchase further drug
substance from Avecia prior to approval of Genasense®. We believe this agreement
is sufficient for our production needs with respect to Genasense®.
We
have a three-year manufacturing and supply agreement with Johnson Matthey Inc.
expiring in December 2006, whereby Genta will purchase a minimum of 80% of our
requirements for quantities of Ganite®. There are no minimum purchase
requirements under the agreement.
The
raw materials that we require to manufacture our drugs are available only from a
few suppliers. Under the terms of our manufacturing and supply agreement, Avecia
is responsible for procuring the raw materials needed to manufacture Genasense®.
We believe that we have adequately addressed our needs for suppliers of raw materials
to manufacture Genasense® and Ganite® and meet future customer demand.
Human
Resources
In
May 2004, as a part of the Company’s reduction in workforce, the Company
eliminated 85 employees, or approximately 45%, including 27 positions classified as
research and development positions. In August 2004, Genta completed the closure of its
research facility in Salt Lake City, which had originated from the August 2003
acquisition of Salus Therapeutics, Inc. As a result, the Company eliminated an
additional 15 positions classified as research and development positions.
As
of December 31, 2004, Genta had 73 employees, 15 of whom hold doctoral degrees. As
of that date, there were 49 employees engaged in research, development and other
technical activities, 2 employees in sales and marketing and 22 in
administration. None of Genta’s employees are represented by a union. Most
of the management and professional employees of Genta have had prior experience and
positions with pharmaceutical and biotechnology companies. Genta believes it
maintains satisfactory relations with its employees and has not experienced
interruptions of operations due to labor disagreements.
C.
Government Regulation
Regulation
by governmental authorities in the United States and foreign countries is a
significant factor in our ongoing research and product development activities and in
the manufacture and marketing of our proposed products. All of our therapeutic
products will require regulatory approval by governmental agencies prior to
commercialization. In particular, human therapeutic products are subject to
rigorous pre-clinical 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 affect the
development, testing, manufacturing, safety, labeling, storage, recordkeeping 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 substantial expenditures. Any failure by Genta, our
collaborators or our licensees to obtain, or any delay in obtaining, regulatory
approvals could adversely affect the marketing of our products and our ability
to receive products or royalty revenue.
14
The
activities required before a new pharmaceutical agent may be marketed in the
United States begin with pre-clinical testing. Pre-clinical 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.
Clinical
trials are generally categorized into four phases.
Phase
1 trials are initial safety trials on a new medicine in which investigators
attempt to establish the dose range tolerated by a small group of patients using
single or multiple doses, and to determine the pattern of drug distribution and
metabolism.
Phase
2 trials are clinical trials to evaluate efficacy and safety in patients afflicted
with a specific disease. Typically, Phase 2 trials in oncology comprise 14 to 50
patients. Objectives may focus on dose-response, type of patient, frequency of dosing
or any of a number of other issues involved in safety and efficacy.
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.
Phase
3 trials are usually multi-center, comparative studies that involve larger
populations. These trials are generally intended to be pivotal in importance for the
approval of a new drug. In oncology, Phase 3 trials typically involve 100 to 1,000
patients for whom the medicine is eventually intended. Trials are also conducted in
special groups of patients or under special conditions dictated by the nature of
the particular medicine and/or disease. Phase 3 trials often provide much of the
information needed for package insert and labeling of the medicine. A trial is fully
enrolled when it has a sufficient number of patients to provide enough data for the
statistical proof of efficacy and safety required by the FDA and others. After a
sufficient period of follow-up has elapsed to satisfactorily evaluate safety and
efficacy, the trials results can then be analyzed. Those results are then commonly
reported at a scientific meeting, in a medical journal and to the public.
Depending
upon the nature of the trial results, a company may then elect to discuss the results
with regulatory authorities such as the FDA. If the company believes the data may
warrant consideration for marketing approval of the drug, the results of the
pre-clinical and clinical testing, together with chemistry, manufacturing and
control information, are then submitted to the FDA for a pharmaceutical product in the
form of an NDA. In responding to an NDA, biologics license application or
premarket approval application, 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 Genta in the
future will be granted on a timely basis, if at all, or if granted will cover all the
clinical indications for which we are seeking approval or will not contain
significant limitations in the form of warnings, precautions or
contraindications with respect to conditions of use. Phase 3b trials are conducted
after submission of a NDA, but before the product's approval for market launch.
Phase 3b trials may supplement or complete earlier trials, or they may seek
different kinds of information, such as quality of life or marketing. Phase 3b
is the period between submission for approval and receipt of marketing
authorization.
After
a medicine is marketed, Phase 4 trials provide additional details about the
product's safety and efficacy.
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 pre-clinical
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 new drug application, although no assurance can be given that a
product will be granted such treatment by the FDA.
15
Under
European Union regulatory systems, we may submit marketing authorizations either
under a centralized or decentralized procedure. The centralized procedure provides
for the grant of a single marketing authorization that is valid for all European Union
member states. The decentralized procedure provides for mutual recognition of
national approval decisions. Under this procedure, the holder of a national
marketing authorization may submit an application to the remaining member states.
Within 90 days of receiving the applications and assessment report, each member
state must decide whether to recognize approval.
We
and our third-party manufacturers are also subject to various foreign, federal,
state and local laws and regulations relating to health and safety, 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 our research and development work and manufacturing processes. We
currently incur costs to comply with laws and regulations and these costs may become
more significant.
D.
Competition
In
many cases, our 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. We compete
with fully integrated pharmaceutical companies that have substantially more
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 us.
Our
competition will be determined in part by the potential indications for which
our products are developed and ultimately approved by regulatory authorities.
For certain of our potential products, an important factor in competition may
be the timing of market introduction of our or our competitors’ products.
Accordingly, the relative speed with which we 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. We expect 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 our products under development non-competitive or
obsolete.
Our
competitive position also depends upon our 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 Uncertainties Related to the Company’s Business
You
should carefully consider the following risks and all of the other information set
forth in this prospectus before deciding to invest in shares of our common stock.
The risks described below are not the only ones facing our company. Additional risks
not presently known to us or that we currently deem immaterial may also impair our
business operations.
If
any of the following risks actually occurs, our business, financial condition or
results of operations would likely suffer. In such case, the trading price of our
common stock could decline due to any of these risks, and you may lose all or part of
your investment.
16
We
may be unsuccessful in our efforts to obtain FDA approval for and commercialize Genasense® or
our other pharmaceutical products. |
The
commercialization of our pharmaceutical products involves a number of significant
challenges. In particular, our ability to commercialize products, such as Ganite® and
Genasense®, depends, in large part, on the success of our clinical development
programs, our efforts to obtain regulatory approvals and our sales and marketing
efforts directed at physicians, patients and third-party payors. A number of
factors could affect these efforts, including:
We
cannot assure you that Genasense® will receive FDA approval. Our financial
condition and results of operations have been and will continue to be significantly
affected by FDA action with respect to Genasense®. In late 2003, we filed
our first NDA with the FDA for Genasense® as a treatment combined with
chemotherapy for patients with malignant melanoma. On May 3, 2004 the FDA Oncology
Drugs Advisory Committee voted not to recommend Genasense®. On May 13, 2004
the Company announced that it had withdrawn its NDA. Genta continues to track data
from patients enrolled in this trial and to analyze its results. The Company
expects to present updated information from this trial in 2005. The Company is
currently reviewing the possibility for filing the updated data for marketing
approval in Europe.
On
November 8, 2004, we announced the results of our Phase 3 clinical trial of
Genasense® in patients with relapsed or refractory CLL. The trial met its primary
endpoint of significantly increasing the proportion of patients who achieved a
complete or nodular partial remission, as determined by blinded expert review of
clinical data and bone marrow biopsies. A significant increase in disease-free
survival was also observed. No difference was observed in overall response rate,
time-to-disease progression, or overall survival. The incidence of certain serious
adverse reactions, including but not limited to nausea, fever and catheter-related
complications, was increased in patients treated with Genasense®. Adverse
events (irrespective of relation to study drugs) during treatment or within 30
days from last dose of treatment that resulted in death occurred in 9 patients
treated with Genasense® plus chemotherapy compared with 5 patients treated with
chemotherapy alone. The percentage of patients who experienced serious adverse events
was increased in the Genasense® arm; however, the percentages of patients
who discontinued treatment due to adverse events were equal in the treatment
arms. We plan to discuss the feasibility of submitting a NDA based on these
data in CLL with the FDA.
In
November 2004, Genta reported that the Company's randomized Phase 3 clinical
trial of Genasense® in patients with multiple myeloma did not meet its primary
endpoint. The trial had been designed to evaluate whether the addition of
Genasense® to standard therapy with high-dose dexamethasone could increase the
time to development of progressive disease in patients who previously had received
extensive therapy. Based on the results of the Phase 3 trial, the Company has no
plans to submit an NDA in this indication at the current time. The Company has not
yet determined what additional clinical trials, if any, may be undertaken in patients
with multiple myeloma.
17
We
cannot assure you that we will submit a NDA for Genasense® in CLL or submit
regulatory filings in melanoma or other diseases to the FDA or outside the U.S. Even
if submitted, we cannot provide assurance that these submissions will result in
regulatory approval of Genasense® in any territory. Failure to obtain approval, or
a substantial delay in approval of Genasense® for these or any other indications,
would have a material adverse effect on our results of operations and financial
condition.
Ultimately,
our efforts may not prove to be as effective as those 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 be unsuccessful in commercializing our products.
We
intend to be a direct marketer of some products in the United States. Currently
we do not have a sales force. Our sales force was eliminated in 2004 following
our decision to withdraw the NDA for Genasense®
for the treatment of malignant melanoma. Our need to build a sales force capable
of marketing our products may adversely affect our sales and limit the commercial
success of our products.
On
November 8, 2004, we received from Aventis a notice of termination of the agreements
between Genta and Aventis regarding the development and commercialization of Genasense®.
We will lose a significant source of funding as a result of this termination. |
In
April 2002, we entered into a series of agreements relating to the development and
commercialization of Genasense®, to which we refer collectively as the
Collaborative Agreement, with Aventis and its affiliates. On November 8, 2004, we
received from Aventis a notice of termination of the Collaborative Agreement. The
key financial aspects of the Collaborative Agreement were the following:
As
of December 31, 2004, we had received a total of $266.8 million in initial and
near-term funding pursuant to the Collaborative Agreement, which included a
$10.0 million licensing fee and $40.0 million in development funding, $10.0
million in convertible debt proceeds, $71.9 million pursuant to an at-market equity
investment in our common stock, $127.6 million in expense reimbursements and $7.3
million in line of credit proceeds. As a result of the termination of the
Collaborative Agreement, Aventis will continue to support the development of
Genasense® for a six-month period lasting until May 8, 2005. After May 8, 2005,
we will be responsible for all Genasense® costs. In addition, with the November
8, 2004 notice of termination by Aventis, Genta could no longer borrow additional
funds under the line of credit and the remaining balance of the line of credit
must be repaid no later than May 8, 2005. During the termination period,
reimbursements due to Genta for ongoing development activities will continue to be
applied against the line of credit balance. As a result of the termination of the
Collaborative Agreement, Aventis has forgiven the $10.0 million of convertible debt
and accrued interest issued to them in connection with the collaboration.
18
We
are considering whether to seek a new partner for the development and
commercialization of Genasense®. If we determine not to collaborate with a
partner, or are unable to identify a partner, we will be solely responsible for the
development and commercialization of Genasense®, including the costs associated
therewith. We may not have sufficient resources to do so. Even if we are able to
identify a partner, we may not be able to enter into an agreement on acceptable
terms.
We
rely on our contractual collaborative arrangements with research institutions and
corporate partners for development and commercialization of our products. 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 the conduct of clinical
research and other research activities in order to augment our internal research
capabilities and to obtain access to specialized knowledge and expertise. Our
business strategy depends in part on our continued ability to develop and maintain
relationships with leading academic and research institutions and with 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, 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, we have received from Aventis a notice of termination of the
Collaborative Agreement.
We
cannot control the resources that any collaborator may devote to our products. Any
of our present or future collaborators may not perform their obligations as
expected. These collaborators may breach or terminate their agreements with us, for
instance upon changes in control or management of the collaborator, or they may
otherwise fail to conduct their collaborative activities successfully and in a timely
manner.
In
addition, our collaborators may elect not to develop products arising out of our
collaborative arrangements or to devote sufficient resources to the development,
regulatory approval, manufacture, marketing or sale of these products. If any of
these events occur, we may not be able to develop our products or commercialize our
products.
An
important part of our strategy involves conducting multiple product development
programs. We may pursue opportunities in fields that conflict with those of our
collaborators. In addition, disagreements with our collaborators could develop over
rights to our intellectual property. The resolution of such conflicts and
disagreements may require us to relinquish rights to our intellectual property that
we believe we are entitled to. In addition, any disagreement or conflict with
our collaborators could reduce our ability to obtain future collaboration
agreements and negatively impact our relationship with existing collaborators. Such
a conflict or disagreement could also lead to delays in collaborative research,
development, regulatory approval or commercialization of various products or could
require or result in litigation or arbitration, which would be time consuming and
expensive and could have a significant negative impact on our business, financial
condition and results of operations.
We
anticipate that we will incur additional losses and we may never be profitable. |
We
have never been profitable. From the period since our inception to December 31, 2004,
we have incurred a cumulative net loss of $356.0 million. We may never achieve
revenue sufficient for us to attain profitability. Achieving profitability is
unlikely before Genasense® receives approval from the FDA for commercial sale
in one or more indications.
19
Our
business will suffer if we fail to obtain timely funding. |
Our
operations to date have required significant cash expenditures. As a result of
Aventis’ termination of the Collaborative Agreement, after May 8, 2005, we will be
responsible for all Genasense® costs. Our future capital requirements will depend
on the results of our research and development activities, pre-clinical studies
and clinical trials, competitive and technological advances, and regulatory activities
of the FDA and other regulatory authorities. In order to commercialize our
products, we will need to raise additional funds. On December 15, 2004, we sold 15
million shares of common stock at a price of $1.50 per share to two institutional
investors, raising $21.6 million, net of fees and expenses. We will need to obtain
more funding in the future through collaborations or other arrangements with
research institutions and corporate partners or public and private offerings of
our securities, including debt or equity financing. We may not be able to obtain
adequate funds for our operations from these sources when needed or on acceptable
terms. Future collaborations or similar arrangements may require us to license
valuable intellectual property to, or to share substantial economic benefits
with, our collaborators. If we raise additional capital by issuing additional
equity or securities convertible into equity, our stockholders may experience
dilution and our share price may decline. Any debt financing may result in restrictions
on our spending.
If
we are unable to raise additional funds, we will need to do one or more of the following:
Our
business depends heavily on a small number of products. |
We
currently sell one product, Ganite®. We do not expect to expand our marketed
product portfolio significantly in the short term unless Genasense® receives
marketing approval. If Genasense® is not approved, if approval is significantly
delayed, or if in the event of approval, the product is commercially unsuccessful, we
do not expect significant sales of other products to offset this loss of potential
revenue.
To
diversify our product line in the long term, it will be important for us to
identify suitable technologies and products for acquisition or licensing and
development. If we are unable to identify suitable technologies and products, or if
we are unable to acquire or license products we identify, we may be unable to diversify
our product line and to generate long-term growth.
We
may be unable to obtain or enforce patents, other proprietary rights and licenses to
protect our business; we could become involved in litigation relating to our patents or
licenses 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:
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 they involve complex legal and factual questions.
As a result, our ability to obtain and enforce patents that protect our drugs
is highly uncertain. If we are unable to obtain and enforce patents and licenses to
protect our drugs, our business, results of operations and financial condition could be
adversely affected.
20
We
hold numerous U.S., foreign and international patents covering various aspects of our
technology, which include novel compositions of matter, use, methods of
large-scale synthesis and methods of controlling gene expression. In the future,
however, we may not be successful in obtaining additional patents despite pending
or future applications. Moreover, our current and future patents may not be
sufficiently broad to protect us against competitors who use similar technology.
Additionally, our patents, the patents of our business partners and the patents
for which we have obtained licensing rights may be challenged, narrowed, invalidated
or circumvented. Furthermore, rights granted under our patents may not be broad
enough to cover commercially valuable drugs or processes and therefore may not
provide us with any competitive advantage with respect thereto.
The
pharmaceutical and biotechnology industries have been greatly affected 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.
The
cost to us of any litigation or proceeding relating to patent or license rights, even
if resolved in our favor, could be substantial. Some of our competitors may be able to
sustain the costs of complex patent or licensing 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 importation of drugs that would compete unfairly with our
drugs. These types of proceedings could cause us to incur considerable costs.
The
patent covering the use of Ganite® for its approved indication will expire in April
2005. Genta has filed and continues to file patent applications seeking intellectual
property protection for Ganite®.
Some
of our products are in an early stage of development, and we may never receive
regulatory approval for these products. |
Most
of our resources have been dedicated to the research and development of
potential antisense pharmaceutical products such as Genasense®, based upon
oligonucleotide technology. While we have demonstrated the activity of antisense
oligonucleotide technology in model systems in vitro and in animals, Genasense® is
our only antisense product to have 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 many factors, including but not limited to the size of
the patient population, the ability of patients to get to the site of the
clinical study, the criteria for determining which patients are eligible to join the
study and other issues. Delays in patient enrollment and other unforeseen
developments could delay completion of a clinical study and increase its costs,
which could also delay any eventual commercial sale of the drug that is the subject of
the clinical trial.
21
Our commencement and rate of completion of clinical trials also
may be delayed by many other factors, including the following:
If
we fail to obtain the necessary regulatory approvals, we cannot market and sell our
products in the United States or in other countries. |
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. 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. On May 3, 2004, the FDA Oncology Drugs
Advisory Committee voted not to recommend Genasense® for marketing approval for
the treatment of malignant melanoma. As a result, on May 13, 2004 we announced
that we withdrew our NDA. We cannot assure you 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 and our business, results of
operations and financial condition could consequently be materially adversely affected.
If
the third party manufacturers upon which we rely fail to produce our products
in the volumes that we require on a timely basis, or to comply with stringent
regulations applicable to pharmaceutical drug manufacturers, we may face delays
in the commercialization of, or be unable to meet demand for, our products and
may lose potential revenues. |
We
do not manufacture any of our products or product candidates and we do not plan to
develop any capacity to do so. We have contracted with third-party manufacturers to
manufacture Ganite® and Genasense®. The manufacture of pharmaceutical
products requires significant expertise and capital investment, including the
development of advanced manufacturing techniques and process controls.
Manufacturers of pharmaceutical products often encounter difficulties in
production, especially in scaling up initial production. These problems include
difficulties with production costs and yields, quality control and assurance and
shortages of qualified personnel, as well as compliance with strictly enforced
federal, state and foreign regulations. Our third-party manufacturers may not
perform as agreed or may terminate their agreements with us.
In
addition to product approval, any facility in which Genasense® is manufactured or
tested for its ability to meet required specifications must be approved by the
FDA before it can manufacture Genasense®. Failure of the facility to be
approved could delay the approval of Genasense®.
We
do not currently have alternate manufacturing plans in place. The number of
third-party manufacturers with the expertise, required regulatory approvals and
facilities to manufacture bulk drug substance on a commercial scale is limited,
and it would take a significant amount of time to arrange for alternative
manufacturers. If we need to change to other commercial manufacturers, the FDA
and comparable foreign regulators must approve these manufacturers’ facilities
and processes prior to our use, which would require new testing and compliance
inspections, and the new manufacturers would have to be educated in or
independently develop the processes necessary for the production of our products.
22
Any
of these factors could cause us to delay or suspend clinical trials, regulatory
submissions, required approvals or commercialization of our products or product
candidates, entail higher costs and result in our being unable to effectively
commercialize our products. Furthermore, if our third-party manufacturers fail to
deliver the required commercial quantities of bulk drug substance or finished
product on a timely basis and at commercially reasonable prices, and we were unable
to promptly find one or more replacement manufacturers capable of production at
a substantially equivalent cost, in substantially equivalent volume and on a
timely basis, we would likely be unable to meet demand for our products and we would
lose potential revenues.
Even
if we obtain regulatory approval, we will be subject to ongoing regulation, and any
failure by us or our manufacturers to comply with such regulation could suspend or
eliminate our ability to sell our products. |
Ganite®,
Genasense®, if it obtains regulatory approval, and any other product we may
develop will be subject to ongoing regulatory oversight, primarily by the FDA.
Failure to comply with post-marketing requirements, such as maintenance by us or by
the manufacturers of our products of current Good Manufacturing Practices as
required by the FDA, or safety surveillance of such products or lack of compliance with
other regulations could result in suspension or limitation of approvals or other
enforcement actions. Current Good Manufacturing Practices are FDA regulations that
define the minimum standards that must be met by companies that manufacture
pharmaceuticals and apply to all drugs for human use including those to be used in
clinical trials as well as those produced for general sale after approval of an
application by the FDA. These regulations define requirements for personnel, buildings
and facilities, equipment, control of raw materials and packaging components,
production and process controls, packaging and label controls, handling and
distribution, laboratory controls and recordkeeping. Furthermore, the terms of
any product candidate approval, including the labeling content and advertising
restrictions, may be so restrictive that they could adversely affect the
marketability of our product candidates. Any such failure to comply or the application
of such restrictions could limit our ability to market our product candidates and
may have a material adverse effect on our business, results of operations and
financial condition. Such failures or restrictions may also prompt regulatory
recalls of one or more of our products, which could have material and adverse
effects on our business.
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 products and 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 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.
23
The
outcome of and costs relating to pending shareholder class action and shareholder
derivative actions are uncertain. |
In
2004, numerous complaints were filed in the United States District Court for the
District of New Jersey against Genta and certain of our principal officers on
behalf of purported classes of our shareholders who purchased our securities during
several class periods. The complaints have been consolidated into a single action and
allege that we and certain of our principal officers violated the federal
securities laws by issuing materially false and misleading statements regarding
Genasense® for the treatment of melanoma that had the effect of artificially
inflating the market price of our securities. The shareholder class action
complaint in the various actions seeks monetary damages in an unspecified amount
and recovery of plaintiffs’ costs and attorneys’ fees. In addition, three
shareholder derivative actions have been filed against the directors and certain
officers of Genta in New Jersey State and Federal courts. Based on facts
substantially similar to those asserted in the shareholder class actions, the
derivative plaintiffs claim that defendants have breached their fiduciary duties to
the shareholders and other violations of New Jersey law. The Company believes these
litigations are without merit and will vigorously defend against these suits.
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 and 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
or adversely affect our business and financial performance.
We
may incur a variety of costs to engage in future acquisitions of companies, products or
technologies, and the anticipated benefits of those acquisitions may never be realized. |
As
a part of our business strategy, we may make acquisitions of, or significant
investments in, complementary companies, products or technologies, although no
significant acquisition or investments are currently pending. Any future
acquisitions would be accompanied by risks such as:
We
cannot guarantee that we will be able to successfully integrate any business, products,
technologies or personnel that we might acquire in the future, and our failure to do so
could harm our business.
24
We
face substantial competition from other companies and research institutions that are
developing similar products, and we may not be able to compete successfully. |
In
many cases, our 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. We compete
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 us.
Our
competition will be determined in part by the potential indications for which
our products are developed and ultimately approved by regulatory authorities.
For certain of our potential products, an important factor in competition may
be the timing of market introduction of our or our competitors’ products.
Accordingly, the relative speed with which we 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. We expect 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 our products under development non-competitive or
obsolete.
Our
competitive position also depends upon our 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. We cannot assure you that we
will be successful in this regard.
We
are dependent on our key executives and scientists, and the loss of key 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 assurances that we will be able to
attract and retain the qualified personnel necessary for the development of our
business.
Risks
Related to Our Common Stock
Provisions
in our restated certificate of incorporation and bylaws and Delaware law may
discourage a takeover and prevent our stockholders from receiving a premium for
their shares. |
Provisions
in our restated certificate of incorporation and bylaws may discourage third parties
from seeking to obtain control of us and, therefore, could prevent our stockholders
from receiving a premium for their shares. Our restated certificate of
incorporation gives our board of directors the power to issue shares of preferred
stock without approval of the holders of common stock. Any preferred stock that is
issued in the future could have voting rights, including voting rights that could be
superior to that of our common stock. The affirmative vote of 66-2/3% of our
voting stock is required to approve certain transactions and to take certain
stockholder actions, including the amendment of certain provisions of our
certificate of incorporation. Our bylaws contain provisions that regulate how
stockholders may present proposals or nominate directors for election at annual
meetings of stockholders.
In
addition, we are subject to Section 203 of the Delaware General Corporation Law,
which contains restrictions on stockholder action to acquire control of Genta.
25
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.
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 but are not limited to:
As
of December 31, 2004, we had 95.4 million shares of common stock outstanding and
options, warrants and convertible preferred stock outstanding exercisable for or
convertible into 11.5 million additional shares. 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 |
We
lease approximately 93 thousand square feet of office space in Berkeley Heights, New
Jersey. Our annual rental costs for this space are approximately $2.4 million. Our
lease on this space terminates in 2010.
| Item 3. | Legal Proceedings |
In
2004, numerous complaints were filed in the United States District Court for the
District of New Jersey against Genta and certain of our principal officers on
behalf of purported classes of our shareholders who purchased our securities during
several class periods. The complaints have been consolidated into a single action and
allege that we and certain of our principal officers violated the federal
securities laws by issuing materially false and misleading statements regarding
Genasense® for the treatment of melanoma that had the effect of artificially
inflating the market price of our securities. The shareholder class action
complaint in the various actions seeks monetary damages in an unspecified amount
and recovery of plaintiffs’ costs and attorneys’ fees. In addition, three
shareholder derivative actions have been filed against the directors and certain
officers of Genta in New Jersey State and Federal courts. Based on facts
substantially similar to those asserted in the shareholder class actions, the
derivative plaintiffs claim that defendants have breached their fiduciary duties to
the shareholders and other violations of New Jersey law. The Company believes these
litigations are without merit and will vigorously defend against these suits.
Management
does not believe that this litigation will have a material adverse impact on the
Company’s financial results or liquidity.
| 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, 2004.
26
| 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 | |||||||
| 2004 | ||||||||
| First Quarter | $ | 14.25 | $ | 9.25 | ||||
| Second Quarter | 16.65 | 2.06 | ||||||
| Third Quarter | 3.20 | 1.35 | ||||||
| Fourth Quarter | 3.03 | 1.18 | ||||||
| 2003 | ||||||||
| First Quarter | $ | 8.80 | $ | 5.50 | ||||
| Second Quarter | 14.69 | 6.52 | ||||||
| Third Quarter | 17.65 | 11.10 | ||||||
| Fourth Quarter | 12.90 | 8.59 | ||||||
(b)
Holders
There
were 605 holders of record of the Company’s common stock as of March 9, 2005.
(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.
(f)
Use of Proceeds
In
December 2004, the Company raised $21.6 million, net of issuance costs, from the
issuance of common stock pursuant to our shelf registration statement. The net
proceeds from the sale of the common stock will be used for general corporate purposes.
27
| Item 6. | Selected Consolidated Financial Data |
| Years Ended December 31, | |||||||||||||||||
| (In thousands, except share data) | 2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||
| Consolidated Statements of Operations Data: | |||||||||||||||||
| Revenues: | |||||||||||||||||
| License fees and royalties | $ | 3,022 | $ | 1,045 | $ | 756 | $ | 146 | $ | 22 | |||||||
| Development funding | 12,105 | 4,194 | 2,803 | – | – | ||||||||||||
| Product sales - net | (512 | ) | 1,420 | – | – | – | |||||||||||
| Total revenues | 14,615 | 6,659 | 3,559 | 146 | 22 | ||||||||||||
| Cost of goods sold | 170 | 404 | – | – | – | ||||||||||||
| Provision for excess inventory | 1,350 | – | – | – | – | ||||||||||||
| Total cost of goods sold | 1,520 | 404 | – | – | – | ||||||||||||
| Gross margin | 13,095 | 6,255 | 3,559 | 146 | 22 | ||||||||||||
| Costs and expenses: | |||||||||||||||||
| Research and development | 71,494 | 83,084 | 87,162 | 39,925 | 8,311 | ||||||||||||
| Selling, general and administrative | 28,576 | 29,831 | 20,551 | 8,719 | 10,447 | ||||||||||||
| Promega settlement | – | – | – | 1,000 | – | ||||||||||||
| Loss on disposition of property and equipment | 1,254 | 3 | 13 | 19 | – | ||||||||||||
| Total cost and expenses - gross | 101,324 | 112,918 | 107,726 | 49,663 | 18,758 | ||||||||||||
| Aventis reimbursement | (43,292 | ) | (55,891 | ) | (28,451 | ) | – | – | |||||||||
| Total cost and expenses - net | 58,032 | 57,027 | 79,275 | 49,663 | 18,758 | ||||||||||||
| Gain on extinguishment of debt | 11,495 | – | – | – | – | ||||||||||||
| Other (expense)/income | (147 | ) | 669 | 1,372 | 2,804 | 6,285 | |||||||||||
| Loss before income taxes | (33,589 | ) | (50,103 | ) | (74,344 | ) | (46,713 | ) | (12,451 | ) | |||||||
| Income tax benefit/(expense) | 904 | (6 | ) | (184 | ) | – | – | ||||||||||
| Net loss | (32,685 | ) | (50,109 | ) | (74,528 | ) | (46,713 | ) | (12,451 | ) | |||||||
| Preferred stock dividends | – | – | – | – | (3,443 | ) | |||||||||||
| Net loss applicable to common shares | $ | (32,685 | ) | $ | (50,109 | ) | $ | (74,528 | ) | $ | (46,713 | ) | $ | (15,894 | ) | ||
| Net loss per basic and diluted share | $ | (0.41 | ) | $ | (0.67 | ) | $ | (1.05 | ) | $ | (0.84 | ) | $ | (0.41 | ) | ||
| Shares used in computing net loss per basic and diluted share | 79,798 | 75,093 | 70,656 | 55,829 | 38,659 | ||||||||||||
| As of December 31, | |||||||||||||||||
| 2004 | 2003 | 2002 | 2001 | 2000 | |||||||||||||
| Consolidated Balance Sheet Data: | |||||||||||||||||
| Cash, cash equivalents and marketable securities | $ | 42,247 | $ | 82,929 | $ | 113,716 | $ | 54,086 | $ | 50,199 | |||||||
| Working capital | (4,269 | ) | 81,252 | 91,586 | 42,709 | 48,321 | |||||||||||
| Total assets | 50,532 | 114,675 | 136,419 | 60,630 | 57,208 | ||||||||||||
| Total stockholders’ equity | 1,752 | 12,254 | 46,703 | 48,310 | 53,567 | ||||||||||||
28
| 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’s strategy is to build a
product and technology portfolio primarily focused on its cancer-related
products. 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 our inception to December 31, 2004, we have incurred a cumulative
net loss of $356.0 million. We have experienced significant quarterly fluctuations in
operating results and we expect that these fluctuations in revenues, expenses and
losses will continue.
Our
financial results in 2004 have been and will continue to be significantly affected
by FDA action with respect to Genasense®. In late 2003 we filed a NDA for
Genasense® to be used in combination with dacarbazine for the treatment of
patients with melanoma who have not previously received chemotherapy. In the absence
of increased survival, the FDA Oncology Drugs Advisory Committee voted that the
evidence presented did not provide substantial evidence of effectiveness, as
measured by response rate and progression-free survival, to outweigh the increased
toxicity of administering Genasense® for the treatment of patients with
metastatic melanoma who have not received prior chemotherapy. On May 13, 2004
the Company announced that it had withdrawn its NDA. On the same day, the Company
initiated a series of steps that were designed to conserve cash in order to
focus on Genasense®. The Company reduced its workforce by 85 employees, or
approximately 45%, including its field sales employees. The Company also
significantly reduced its marketing support of Ganite®, its only marketed product.
In August 2004, Genta closed its research facility in Salt Lake City, Utah, with a
further reduction of 15 employees.
In
November 2004, the Company reported results from a randomized Phase 3 clinical trial
of Genasense® in patients with relapsed or refractory chronic lymphocytic
leukemia (CLL). Two hundred forty one patients were randomized to receive standard
chemotherapy with fludarabine and cyclophosphamide with or without Genasense®.
The primary objective of the study was to evaluate whether the addition of Genasense® would
increase the proportion of patients who attained major objective responses (defined as
complete remission or a nodular partial remission), as determined by review of
clinical data and bone marrow biopsies using experts who were blinded as to
treatment assignment. Analysis of study results has shown that the addition of
Genasense® to chemotherapy was associated with a statistically significant
increase in the major objective response rate compared with the rate observed in
patients who were treated with chemotherapy alone. A significant increase in
disease-free survival was also observed. No difference was observed in overall
response rate, time-to-disease progression, or overall survival. The incidence of
certain serious adverse reactions, including but not limited to nausea, fever
and catheter-related complications, was increased in patients treated with
Genasense®. Adverse events (irrespective of relation to study drugs) during
treatment or within 30 days from last dose of treatment that resulted in death
occurred in 9 patients treated with Genasense® plus chemotherapy compared with 5
patients treated with chemotherapy alone. The percentage of patients who experienced
serious adverse events was increased in the Genasense arm; however, the percentages
of patients who discontinued treatment due to adverse events were equal in the
treatment arms.
In
November 2004, Genta reported that the Company's randomized Phase 3 clinical trial
of Genasense® in patients with multiple myeloma did not meet its primary
endpoint. The trial had been designed to evaluate whether the addition of
Genasense® to standard therapy with high-dose dexamethasone could increase the
time to development of progressive disease in patients who previously had received
extensive therapy. As a result of the outcome of the Phase 3 trial, the Company has
virtually eliminated activities on this indication.
29
A
significant source of funds during the last several years has been provided by the
Company’s collaboration with Aventis, regarding the development and
commercialization of Genasense®. The key financial aspects of the Collaborative
Agreement were the following:
On November
8, 2004 the Company received from Aventis notice of termination of the
agreements between Genta and Aventis. Pursuant to those agreements, Aventis will
continue to support the development of Genasense® for a six-month period lasting
until May 8, 2005.
Results of Operations
|
Summary Operating Results For the years ended December 31, |
|||||||||||||||||
| ($ thousands) | 2004 | Increase
(Decrease) |
2003 | Increase
(Decrease) |
2002 | ||||||||||||
| Revenues: | |||||||||||||||||
| License fees and royalties | $ | 3,022 | $ | 1,977 | $ | 1,045 | $ | 289 | $ | 756 | |||||||
| Development funding | 12,105 | 7,911 | 4,194 | 1,391 | 2,803 | ||||||||||||
| Product sales - net | (512 | ) | (1,932 | ) | 1,420 | 1,420 | – | ||||||||||
| Total revenues | 14,615 | 7,956 | 6,659 | 3,100 | 3,559 | ||||||||||||
| Cost of goods sold | 170 | (234 | ) | 404 | 404 | – | |||||||||||
| Provision for excess inventory | 1,350 | 1,350 | – | – | – | ||||||||||||
| Total cost of goods sold | 1,520 | 1,116 | 404 | 404 | – | ||||||||||||
| Gross margin | 13,095 | 6,840 | 6,255 | 2,696 | 3,559 | ||||||||||||
| Costs and expenses: | |||||||||||||||||
| Research and development (including | |||||||||||||||||
| non-cash compensation expense related to | |||||||||||||||||
| certain stock options issued in 1999 and | |||||||||||||||||
| 2000 of $158, $209 and $517 for the twelve | |||||||||||||||||
| months ended December 31, 2004, 2003 and | |||||||||||||||||
| 2002, respectively) | 71,494 | (11,590 | ) | 83,084 | (4,078 | ) | 87,162 | ||||||||||
| Selling, general and administrative | |||||||||||||||||
| (including non-cash compensation expense | |||||||||||||||||
| related to certain stock options issued in | |||||||||||||||||
| 1999 and 2000 of $62, $227 and $499 for | |||||||||||||||||
| the twelve months ended December 31, 2004, | |||||||||||||||||
| 2003 and 2002, respectively) | 28,576 | (1,255 | ) | 29,831 | 9,280 | 20,551 | |||||||||||
| Loss on disposition of equipment | 1,254 | 1,251 | 3 | (10 | ) | 13 | |||||||||||
| Total costs and expenses - gross | 101,324 | (11,594 | ) | 112,918 | 5,192 | 107,726 | |||||||||||
| Less: Aventis reimbursement | (43,292 | ) | 12,599 | (55,891 | ) | (27,440 | ) | (28,451 | ) | ||||||||
| Total costs and expenses - net | 58,032 | 1,005 | 57,027 | (22,248 | ) | 79,275 | |||||||||||
| Gain on extinguishment of debt | 11,495 | 11,495 | – | – | – | ||||||||||||
| Other (expense)/income | (147 | ) | (816 | ) | 669 | (703 | ) | 1,372 | |||||||||
| Loss before income taxes | (33,589 | ) | 16,514 | (50,103 | ) | (24,241 | ) | (74,344 | ) | ||||||||
| Income tax benefit/(expense) | 904 | 910 | (6 | ) | 178 | (184 | ) | ||||||||||
| Net loss | $ | (32,685 | ) | $ | 17,424 | $ | (50,109 | ) | $ | 24,419 | $ | (74,528 | ) | ||||
30
Total Revenues
Total
revenues, consisting of license fees, development funding and product sales were $14.6
million in 2004 compared to $6.7 million in 2003 and $3.6 million in 2002. License
fees and development funding revenues are generated by the initial $10.0 million
licensing fee and $40.0 million development funding received from Aventis in 2002
under the Collaborative Agreement (see Note 4 to our financial statements), along
with non-exclusive sub-license agreements involving antisense technology. On
November 8, 2004 Aventis gave notice to Genta that it was terminating its
Collaborative Agreement with the Company regarding the development and
commercialization of Genasense®. Under the terms of the Collaborative Agreement,
Aventis will continue to fund ongoing development activities through May 8, 2005.
The Company had previously determined that, due to the nature of the ongoing
development work related to the Collaborative Agreement, the end of the
development phase and the fair-value of the undelivered elements were not
determinable. Accordingly, we deferred recognition of the initial licensing fee
and up-front development funding received from Aventis and recognized these
payments on a straight-line basis over the original estimated useful life of the
related first-to-expire patent of 115 months. As a result of the notice of
termination of the Collaborative Agreement, the Company has determined that the
period over which the remaining deferred revenue should be recognized will be through
May 8, 2005. On November 9, 2004 we began to recognize the remaining deferred
revenue over a six-month period, resulting in increased revenue of $9.9 million
for 2004.
In
October 2003, the Company launched the commercial product Ganite® for the
treatment of cancer-related hypercalcemia that is resistant to hydration,
generating $1.4 million in product sales in 2003. In May 2004, the Company
eliminated its sales force and significantly reduced its marketing support for
Ganite®. After evaluating various options, we decided during the third quarter of
2004 to continue selective marketing support of the product. In December 2004, a
wholesaler contacted the Company to return a significant portion of its inventory
of Ganite®. The Company agreed to the return of this product and recorded a
provision for sales returns, as well as provided for potential returns from other
wholesalers. Our provision for sales returns increased by $1.2 million in 2004,
resulting in net sales of ($.5) million for 2004.
Total
revenues for 2003 of $6.7 million increased $3.1 million from the prior-year period.
As we entered into the Collaborative Agreement in April 2002, 2002 annual results
included the recognition of eight months of license fee and development funding
revenue received from Aventis, while 2003 annual results included the recognition
of twelve months of revenue. In October 2003, the Company launched Ganite®,
generating $1.4 million in product sales.
Cost of goods
sold
During
2004 we recorded provisions for excess Ganite® inventory of $1.4 million.
Research and
Development Expenses
Research
and development expenses before reimbursement were $71.5 million in 2004 compared to
$83.1 million in 2003 and $87.2 million in 2002.
Approximately
$66.8 million or 93% of research and development expenses before reimbursement
were incurred on the Genasense® project for the twelve months ended December 31,
2004. Research and development expenses in 2004 include $33.0 million related to
the expensing of vialed Genasense® product and Genasense® bulk drug
substance, much of which had been originally produced and acquired to be
commercial inventory and other expenses related to the manufacturing and purchase of
Genasense® bulk drug substance. Research and development expenses in 2003 include a
$13.5 million write-off of acquired in-process research and development resulting
from the August 2003 acquisition of Salus Therapeutics, Inc. In August 2004, Genta
completed the closure of its research facility in Salt Lake City, which had
originated from the acquisition of Salus Therapeutics, Inc. Excluding these items,
research and development expenses declined $31.1 million in 2004, primarily
resulting from our decision in May 2004 to reduce staff and reduce most non-Genasense® related
programs, as well as from the comparison to a prior-year period where expenses were
significantly higher resulting from Genasense® Phase 3 clinical trials and NDA
preparation activities.
Research
and development expenses incurred on the Genasense® project in 2003 were
approximately $63.5 million, representing 91% of research and development expenses
after excluding the write-off of acquired in-process research and development
expenses.
31
During
2002, we purchased substantial amounts of drug substance to be used in Genasense® Phase
3 clinical trials, leading to higher research and development expenses.
Due
to the significant risks and uncertainties inherent in the clinical development
and regulatory approval processes, the nature, timing and costs of the efforts
necessary to complete projects in development are not reasonably estimable.
Results from clinical trials may not be favorable. Data from clinical trials are
subject to varying interpretation and may be deemed insufficient by the regulatory
bodies reviewing applications for marketing approvals. As such, clinical
development and regulatory programs are subject to risks and changes that may
significantly impact cost projections and timelines.
Selling,
general and administrative expenses
Selling,
general and administrative expenses were $28.6 million in 2004 compared to $29.8
million in 2003 and $20.6 million in 2002. In 2004, a higher rate of spending in
the first half of the year, in anticipation of approval and launch of Genasense®,
was more than offset by the impact of the May 2004 elimination of the sales force,
reduction of other administrative positions and substantial reduction of
marketing support for Ganite®. This net decrease was partially offset by the
recognition of $1.0 million of legal expenses related to a shareholder class
action suit and three shareholder derivative suits (see Note 19 to our financial
statements).
During
2003, expenses substantially increased from 2002 due to the creation of a sales
force, Ganite® launch activities, a larger administrative staff and higher
general corporate expenses driven by business growth.
Loss on
disposition of property and equipment
In
August 2004, we completed the closure of our research facility in Salt Lake City, sold
all related equipment and assigned our lease on the facility to another company.
Additionally, we disposed of excess equipment at corporate headquarters. As a result
of these actions, we recorded a loss on disposition of property and equipment
of approximately $1.3 million.
Aventis
Reimbursement
Under
the Collaborative Agreement with Aventis, Aventis paid 75% of U.S. NDA-directed
development costs incurred by either Genta or Aventis and 100% of all other
development, marketing and sales costs incurred within the U.S. and elsewhere as
subject to the Collaborative Agreement. A breakdown of the various third-party,
drug supply costs and internal costs of scientific and technical personnel (“Full-Time
Equivalents” or “FTE’s”) that Aventis is required to reimburse
under our Collaborative Agreement with Aventis, follows ($ thousands):
| Reimbursement to Genta | 2004 | 2003 | 2002 | ||||||||
| Third-party costs | $ | 19,284 | $ | 34,073 | $ | 18,168 | |||||
| Drug supply costs | 20,061 | 16,326 | 6,879 | ||||||||
| FTE’s | 5,833 | 7,228 | 3,404 | ||||||||
| Amount due to Genta | $ | 45,178 | $ | 57,627 | $ | 28,451 | |||||
| Reimbursement to Aventis | 1,886 | 1,736 | – | ||||||||
| Net reimbursement to Genta | $ | 43,292 | $ | 55,891 | $ | 28,451 | |||||
Net
expense reimbursement from Aventis of $43.3 million for 2004 decreased from $55.9
million for 2003 primarily due to the greater activity and expenses in 2003
resulting from the NDA filing for Genasense®. Purchases of drug material are
expensed as incurred and are not reimbursable pursuant to our Collaborative Agreement
with Aventis until they are used in clinical trials.
32
In
September 2004, the Company transferred $15.5 million of vialed Genasense® drug
product and Genasense® bulk drug substance to Aventis; this material had been
expensed in May 2004. This amount is included in Drug supply costs in the above table.
The companies agreed to offset amounts owed under the line of credit extended by
Aventis under the Collaborative Agreement (“Line of Credit”) by $14.8
million and accrued interest on the Line of Credit by $.7 million (see Note 13 to
our financial statements).
Once
Aventis provided notice of termination of the Collaborative Agreement, all payments
otherwise due from Aventis have been and will continue to be applied against any
balance on the Line of Credit until the Line of Credit is repaid. In 2004, $12.9
million of reimbursement due to Genta was applied to the balance of the Line of Credit.
Net
expense reimbursement from Aventis of $55.9 million for the year ended December 31,
2003 increased from $28.5 million for the year ended December 31, 2002 due to the
following factors: the comparison of twelve months of activity in 2003 compared to
eight months in 2002, greater activity and expenses resulting from the NDA
filing for Genasense® and reimbursement for 2002 and 2003 drug substance purchases
used in Phase 3 clinical trials.
Reimbursement
to Aventis consists of our 25% share of third party costs incurred by Aventis
and internal costs of Aventis’ scientific and technical personnel.
Gain on
extinguishment of debt
On
November 8, 2004, Aventis gave notice to Genta that it was terminating its
Collaborative Agreement with the Company. Under the terms of the Collaborative
Agreement, Aventis has forgiven the $10.0 million of convertible debt issued to
them in connection with the collaboration, along with $1.5 million in accrued
interest, resulting in a gain on extinguishment of debt of $11.5 million.
Other
(expense)/income
Net
other expense of $.1 million for 2004 unfavorably compared to net other income of $.7
million for the prior year, primarily due to lower average investment balances
throughout 2004 as compared to 2003. Net other income of $.7 million for 2003 declined
$.7 million, or 50%, from 2002, principally due to lower investment balances and
higher borrowings from Aventis.
Income tax
benefit/(expense)
New
Jersey has enacted legislation permitting certain corporations located in New Jersey
to sell state tax loss carryforwards and state research and development credits.
During 2004, New Jersey allowed the Company to sell $11.6 million of its net operating
loss carryforwards and we received $0.9 million from the sale, which we recognized
as income tax benefit.
If
still available under New Jersey law, the Company will attempt to sell its tax loss
carryforwards in 2005. We cannot be assured that the New Jersey program will
continue next year, nor can we estimate what percentage of our saleable tax benefits
New Jersey will permit us to sell, how much money will be received in connection with
the sale, or if the Company will be able to find a buyer for its tax benefits.
Net Loss
Genta
incurred a net loss of $32.7 million, or $0.41 per share, for 2004, $50.1 million,
or $0.67 per share, for 2003 and a net loss of $74.5 million, or $1.05 per share, for
2002. In 2004, the improvement in net loss and per share net loss to common
shareholders was primarily due to accelerated recognition of the initial
licensing fee and up-front development funding previously received from Aventis and
the gain on extinguishment of debt as described above. In 2003, the
improvement in net loss and per share net loss to common shareholders was primarily
due to lower clinical drug substance purchases and higher reimbursement by Aventis as
described above.
33
Recent
Accounting Pronouncements
In
December 2004, the Financial Accounting Standards Board (“FASB”) issued
Statement (“SFAS”) No. 123(R), Share-Based Payment that will require
compensation costs related to share-based payment transactions to be recognized in
the financial statements. With limited exceptions, the amount of compensation cost
will be measured based on the grant-date fair value of the equity or liability
instruments issued. In addition, liability awards will be remeasured each reporting
period. Compensation cost will be recognized over the period that an employee
provides service in exchange for the award. SFAS No. 123(R) replaces SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes Accounting Principles
Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees.
The Company will adopt the provisions of SFAS No. 123R in 2005. We are evaluating the
impact that the adoption of this standard will have on the Company’s results
of operations, financial position or cash flows.
In
December 2004, the FASB issued SFAS No. 153, Exchanges of Non-monetary Assets,
an amendment of APB Opinion No. 29. We do not expect that the adoption of this
statement will have any impact on the Company’s results of operations, financial
position or cash flows.
In
November 2004, the FASB issued SFAS No. 151, Inventory Costs, to clarify the
accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material. As the Company uses third-party manufacturers and does
not manufacture its own products, we do not expect that the adoption of this
statement will have a material impact on the Company’s results of
operations, financial position or cash flows.
Critical
Accounting Policies
Our
significant accounting policies are more fully described in Note 2 to our
consolidated financial statements. In preparing our financial statements in
accordance with accounting principles generally accepted in the United States of
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. The Company believes
that the following represent its critical accounting policies:
34
Liquidity and
Capital Resources
At
December 31, 2004, we had cash, cash equivalents and marketable securities totaling
$42.2 million, a decline of $40.7 million from $82.9 million at December 31,
2003. During 2004 cash flow used in operating activities was $61.2 million,
primarily resulting from a net loss of $32.7 million and non-cash reimbursements
of research and development expenses of $27.3 million. Partially offsetting
this outflow, in December we raised $21.6 million, net of issuance costs, from
the issuance of common stock. Although no assurances can be expressed, management
believes that at the current rate of spending, the Company should have sufficient
cash funds to maintain its present operations through 2005.
At
December 31, 2004, the Company had $7.3 million outstanding (compared to $35.0
million as of December 31, 2003) on the Line of Credit from Aventis. Prior to
June 30, 2004 the Line of Credit was classified as long term debt and beginning
June 30, 2004, it was classified as short term debt. During 2004, as a result of
certain non-cash transactions, the Company reduced amounts owed under the Line of
Credit by $27.7 million. As a result of Aventis’ purchase commitments to
Genta, in September we supplied $15.5 million of vialed Genasense® drug product and
Genasense® bulk drug substance to Aventis. This amount is included in the Company’s
Consolidated Statement of Operations as Aventis reimbursement. The companies
agreed to offset amounts owed under the Line of Credit by $14.8 million and
accrued interest on the Line of Credit by $0.7 million. With the Aventis notice of
termination, Genta cannot borrow additional funds and the Line of Credit must be
repaid no later than May 8, 2005. All payments otherwise due to Genta are applied
against any balance on the Line of Credit until the Line of Credit is repaid.
In 2004, $12.9 million of reimbursement due to Genta was applied to the balance
of the Line of Credit. Under the terms of the Collaborative Agreement, Aventis will
continue to reimburse Genta for ongoing Genasense® clinical trials and development
activities during the six-month notice period. We expect that a substantial portion
of the $7.3 million outstanding on the Line of Credit will be repaid through the
application of reimbursements. After May 8, 2005, all Genasense® costs will be the
responsibility of Genta.
The
terms of the Line of Credit provide for a favorable interest rate, which is
set two days prior to the first day of each calendar quarter. As security for
the repayment of the Line of Credit, Genta has granted Aventis a security interest
in all of its rights to payments under the Collaborative Agreement, as well
as all inventory related to Genasense®.
At
December 31, 2003 cash, cash equivalents and marketable securities totaling
$82.9 million declined $30.8 million from $113.7 million at December 31, 2002. During
2003, cash flow used in operating activities was $64.4 million, primarily resulting
from a net loss of $50.1 million and lower accounts payable and accrued expenses of
$17.4 million. Partially offsetting this outflow were borrowings under the Line of
Credit from Aventis of $35.0 million.
At
December 31, 2002 cash, cash equivalents and marketable securities totaling
$113.7 million increased $59.6 million from $54.1 million at December 31, 2001. During
2002, cash flow used in operating activities was $20.4 million, primarily resulting
from a net loss of $74.5 million offset by the initial $10.0 million licensing fee
and $40.0 million development funding received from Aventis under our
collaborative agreement in 2002. The Company had proceeds of $71.0 million from a
private placement of common stock and $10.0 million from the sale of convertible debt
to Aventis.
Our
principal expenditures relate to our research and development activities, primarily
focused on Genasense®, which include our ongoing and future clinical trials. We
expect these expenditures to continue. The Company currently anticipates total company average monthly
cash outflows to be in the $3.0 million to $4.0 million range. Although no assurances can be expressed,
management believes that at the current rate of spending, the Company should have
sufficient cash funds to maintain its present operations through 2005. The Company
may also seek collaborative agreements and other financing arrangements with
potential corporate partners and other sources. However, there can be no assurance that
any such collaborative agreements or other sources of funding will be available on
favorable terms, if at all. The Company will need substantial additional funds before
it can expect to realize significant product revenue.
35
If
we obtain NDA approval of Genasense® we anticipate seeking additional product
development opportunities through potential acquisitions or investments. Such
acquisitions or investments may consume cash reserves or require additional
cash or equity. Our working capital and additional funding requirements will
depend upon numerous factors, including: (i) the progress of our research and
development programs; (ii) the timing and results of pre-clinical testing and
clinical trials; (iii) the level of resources that we devote to sales and
marketing capabilities; (iv) technological advances; (v) the activities of
competitors; (vi) our ability to establish and maintain collaborative arrangements
with others to fund certain research and development efforts, to conduct clinical
trials, to obtain regulatory approvals and, if such approvals are obtained, to
manufacture and market products and (vii) legal costs and the outcome of outstanding
legal proceedings.
Contractual
Obligations
Future
contractual obligations at December 31, 2004 are as follows ($ thousands):
| Total | Less
than 1 year |
1 - 3 years | 3 - 5 years | More
than 5 years |
|||||||||||||
| Short term debt obligation (1) | $ | 7,312 | $ | 7,312 | $ | – | $ | – | $ | – | |||||||
| Operating lease obligations | 13,498 | 2,568 | 5,330 | 5,171 | 429 | ||||||||||||
| Total | $ | 20,810 | $ | 9,880 | $ | 5,330 | $ | 5,171 | $ | 429 | |||||||
(1)
Consists of amounts under our line of credit with Aventis which are due on May 8,
2005.
Not
included in the above table are any Genasense® bulk drug purchase obligations
to Avecia per the terms of the Manufacturing and Supply Agreement entered into
between Avecia and Genta in December 2002. The agreement calls for Genta to
purchase a percentage of our global Genasense® bulk drug requirements from Avecia
during the term of the agreement. Due to the uncertainties regarding the timing of
any Genasense® approval and sales/volume projections, specific obligation amounts
cannot be estimated at this time. Due to past purchases of Genasense® bulk drug
substance, the Company has access to sufficient drug for its current needs.
| Item 7A. | Quantitative and Qualitative Disclosures about Market Risk |
Our
carrying values of cash, marketable securities, accounts payable, accrued
expenses and debt are a reasonable approximation of their fair value. The estimated
fair values of financial instruments have been determined by us using available
market information and appropriate valuation methodologies (see Note 2 to our
financial statements). We have not entered into and do not expect to enter into,
financial instruments for trading or hedging purposes. We do not currently
anticipate entering into interest rate swaps and/or similar instruments.
Genta’s
primary market risk exposure with regard to financial instruments is to changes
in interest rates, which would impact interest income earned on such
instruments. We have no material currency exchange or interest rate risk
exposure as of December 31, 2004. Therefore there will be no ongoing exposure to
material adverse effect on our business, financial condition or results of operation
for sensitivity to changes in interest rates or to changes in currency exchange
rates.
36
| Item 8. | Financial
Statements and Supplemental Data |
Genta
Incorporated
Index to Financial Statements
37
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2004 and 2003, and the
related consolidated statements of operations, stockholders’ equity, and cash
flows for each of the three years in the period ended December 31, 2004. 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 the standards of the Public Company
Accounting Oversight Board (United States). 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 and subsidiaries
as of December 31, 2004 and 2003, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2004, in
conformity with accounting principles generally accepted in the United States
of America.
As
discussed in Note (1) to the consolidated financial statements of Genta
Incorporated, the Company received from Aventis notice of termination of the
agreements between Aventis and the Company in November 2004. The implications of
such termination to the Company are discussed in Note (1) to the consolidated financial
statements.
We
have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2004, based on the criteria
established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report
dated March 14, 2005 expressed an unqualified opinion on management’s assessment
of the effectiveness of the Company’s internal control over financial reporting
and an unqualified opinion on the effectiveness of the Company’s internal
control over financial reporting.
/s/ DELOITTE
& TOUCHE LLP
Parsippany, New
Jersey
March 14, 2005
38
GENTA
INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands,
except par value data)
| December 31, | ||||||||
| ASSETS | 2004 | 2003 | ||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 36,489 | $ | 25,153 | ||||
| Marketable securities (Note 3) | 5,758 | 57,776 | ||||||
| Accounts receivable- net (Note 5) | – | 16,675 | ||||||
| Inventory (Note 6) | 354 | 518 | ||||||
| Prepaid expenses and other current assets | 1,910 | 2,484 | ||||||
| Total current assets | 44,511 | 102,606 | ||||||
| Property and equipment, net (Note 7) | 2,847 | 4,917 | ||||||
| Notes receivable (Note 8) | – | 3,542 | ||||||
| Intangibles, net (Note 9) | 286 | 863 | ||||||
| Prepaid royalties (Note 10) | 1,268 | 1,268 | ||||||
| Other assets | 1,620 | 1,479 | ||||||
| Total assets | $ | 50,532 | $ | 114,675 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses (Note 11) | $ | 14,424 | $ | 15,319 | ||||
| Deferred revenues, current portion (Note 12) | 26,228 | 5,287 | ||||||
| Notes payable | 816 | 748 | ||||||
| Short term debt (Note 13) | 7,312 | – | ||||||
| Total current liabilities | 48,780 | 21,354 | ||||||
| Deferred revenues (Note 12) | – | 36,067 | ||||||
| Convertible debt (Note 14) | – | 10,000 | ||||||
| Long term debt (Note 13) | – | 35,000 | ||||||
| Total liabilities | 48,780 | 102,421 | ||||||
| Commitments and contingencies (Note 19) | ||||||||
| Stockholders’ equity (Note 17): | ||||||||
| Series A convertible preferred stock, $.001 par value; 5,000 shares authorized, | ||||||||
| 10 and 261 shares issued and outstanding, liquidation value of $485 | ||||||||
| and $13,025 at December 31, 2004 and December 31, 2003, respectively | – | – | ||||||
| Common stock, $.001 par value; 150,000 and 120,000 shares authorized, | ||||||||
| 95,358 and 75,927 shares issued and outstanding at December 31, 2004 | ||||||||
| and December 31, 2003, respectively | 95 | 76 | ||||||
| Additional paid-in capital | 357,714 | 335,713 | ||||||
| Accumulated deficit | (355,984 | ) | (323,299 | ) | ||||
| Deferred compensation | (41 | ) | (261 | ) | ||||
| Accumulated other comprehensive (loss) income | (32 | ) | 25 | |||||
| Total stockholders’ equity | 1,752 | 12,254 | ||||||
| Total liabilities and stockholders’ equity | $ | 50,532 | $ | 114,675 | ||||
See accompanying notes to consolidated financial statements.
39
GENTA
INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
| Years Ended December 31, | |||||||||||
| (In thousands, except per share data) | 2004 | 2003 | 2002 | ||||||||
| Revenues: | |||||||||||
| License fees and royalties (Note 12) | $ | 3,022 | $ | 1,045 | $ | 756 | |||||
| Development funding (Note 12) | 12,105 | 4,194 | 2,803 | ||||||||
| Product sales - net | (512 | ) | 1,420 | – | |||||||
| Total revenues | 14,615 | 6,659 | 3,559 | ||||||||
| Cost of goods sold | 170 | 404 | – | ||||||||
| Provision for excess inventory (Note 6) | 1,350 | – | – | ||||||||
| Total cost of goods sold | 1,520 | 404 | – | ||||||||
| Gross margin | 13,095 | 6,255 | 3,559 | ||||||||
| Costs and expenses: | |||||||||||
| Research and development (including non-cash compensation expense | |||||||||||
| related to certain stock options issued in 1999 and 2000 | |||||||||||
| of $158, $209 and $517 for the years ended December 31, 2004, | |||||||||||
| 2003 and 2002, respectively ) | 71,494 | 83,084 | 87,162 | ||||||||
| Selling, general and administrative (including non-cash compensation expense | |||||||||||
| related to certain stock options issued in 1999 and 2000 | |||||||||||
| of $62, $227 and $499 for the years ended December 31, 2004, | |||||||||||
| 2003 and 2002, respectively) | 28,576 | 29,831 | 20,551 | ||||||||
| Loss on disposition of property and equipment (Note 7) | 1,254 | 3 | 13 | ||||||||
| Total costs and expenses - gross | 101,324 | 112,918 | 107,726 | ||||||||
| Aventis reimbursement (Note 4) | (43,292 | ) | (55,891 | ) | (28,451 | ) | |||||
| Total costs and expenses - net | 58,032 | 57,027 | 79,275 | ||||||||
| Gain on extinguishment of debt (Note 14) | 11,495 | – | – | ||||||||
| Other (expense)/income | (147 | ) | 669 | 1,372 | |||||||
| Loss before income taxes | (33,589 | ) | (50,103 | ) | (74,344 | ) | |||||
| Income tax benefit/(expense) (Note 15) | 904 | (6 | ) | (184 | ) | ||||||
| Net loss | $ | (32,685 | ) | $ | (50,109 | ) | $ | (74,528 | ) | ||
| Net loss per basic and diluted share | $ | (0.41 | ) | $ | (0.67 | ) | $ | (1.05 | ) | ||
| Shares used in computing net loss per | |||||||||||
| basic and diluted share | 79,798 | 75,093 | 70,656 | ||||||||
See accompanying notes to consolidated financial statements.
40
GENTA
INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Years Ended
December 31, 2004, 2003 and 2002
|
Convertible Preferred Stock |
Common Stock | Treasury Stock | Additional Paid-in Capital |
Accumulated Deficit |
Deferred Compensation |
Accumulated Other Comprehensive Income (Loss) |
Total Stockholders’ Equity |
||||||||||||||||||||||||||||
| (In thousands) | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||
| Balance at January 1, 2002 | 261 | $ | – | 66,000 | $ | 66 | – | $ | – | $ | 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 | – | – | 6,665 | 7 | – | – | 71,028 | – | – | – | 71,035 | ||||||||||||||||||||||||
| Issuance of common stock | |||||||||||||||||||||||||||||||||||
| in connection with exercise | |||||||||||||||||||||||||||||||||||
| of warrants and stock options | – | – | 1,503 | 1 | – | – | 3,284 | – | – | – | 3,285 | ||||||||||||||||||||||||
| Purchase of treasury stock | – | – | – | – | (393 | ) | (2,506 | ) | – | – | – | – | (2,506 | ) | |||||||||||||||||||||
| Compensation expense related to certain | |||||||||||||||||||||||||||||||||||
| stock options issued in 1999 and 2000 | – | – | – | – | – | – | – | – | 1,016 | – | 1,016 | ||||||||||||||||||||||||
| Balance at December 31, 2002 | 261 | – | 74,168 | 74 | (393 | ) | (2,506 | ) | 322,997 | (273,190 | ) | (697 | ) | 25 | 46,703 | ||||||||||||||||||||
| Comprehensive loss: | |||||||||||||||||||||||||||||||||||
| Net Loss | – | – | – | – | – | – | – | (50,109 | ) | – | – | (50,109 | ) | ||||||||||||||||||||||
| Unrealized investment loss | – | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||
| Total comprehensive loss | – | – | – | – | – | – | – | – | – | – | (50,109 | ) | |||||||||||||||||||||||
| Issuance of common stock | |||||||||||||||||||||||||||||||||||
| in connection with exercise | |||||||||||||||||||||||||||||||||||
| of warrants and stock options | – | – | 1,172 | 1 | – | – | 2,542 | – | – | – | 2,543 | ||||||||||||||||||||||||
| Purchase of treasury stock | – | – | – | – | (51 | ) | (303 | ) | – | – | – | – | (303 | ) | |||||||||||||||||||||
| Retirement of treasury stock | – | – | (444 | ) | – | 444 | 2,809 | (2,809 | ) | – | – | – | – | ||||||||||||||||||||||
| Issuance of common stock | |||||||||||||||||||||||||||||||||||
| in connection with acquisition of | |||||||||||||||||||||||||||||||||||
| Salus Therapeutics, Inc. | – | – | 1,031 | 1 | – | – | 12,983 | – | – | – | 12,984 | ||||||||||||||||||||||||
| Compensation expense related to certain | |||||||||||||||||||||||||||||||||||
| stock options issued in 1999 and 2000 | – | – | – | – | – | – | – | – | 436 | – | 436 | ||||||||||||||||||||||||
| Balance at December 31, 2003 | 261 | $ | – | 75,927 | $ | 76 | – | $ | – | $ | 335,713 | $ | (323,299 | ) | $ | (261 | ) | $ | 25 | $ | 12,254 | ||||||||||||||
41
GENTA
INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Years Ended
December 31, 2004, 2003 and 2002
|
Convertible Preferred Stock |
Common Stock | Treasury Stock | Additional Paid-in Capital |
Accumulated Deficit |
Deferred Compensation |
Accumulated Other Comprehensive Income (Loss) |
Total Stockholders’ Equity |
||||||||||||||||||||||||||||
| (In thousands) | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||
| Comprehensive loss: | |||||||||||||||||||||||||||||||||||
| Net Loss | – | – | – | – | – | – | – | (32,685 | ) | – | – | (32,685 | ) | ||||||||||||||||||||||
| Unrealized investment loss | – | – | – | – | – | – | – | – | – | (57 | ) | (57 | ) | ||||||||||||||||||||||
| Total comprehensive loss | – | – | – | – | – | – | – | – | – | (32,742 | ) | ||||||||||||||||||||||||
| Issuance of common stock | |||||||||||||||||||||||||||||||||||
| in connection with Series A conversion | (251 | ) | – | 1,855 | 2 | – | – | (2 | ) | – | – | – | – | ||||||||||||||||||||||
| Issuance of common stock | |||||||||||||||||||||||||||||||||||
| in connection with exercise | |||||||||||||||||||||||||||||||||||
| of warrants and stock options | – | – | 2,576 | 2 | – | – | 478 | – | – | – | 480 | ||||||||||||||||||||||||
| Issuance of common stock | |||||||||||||||||||||||||||||||||||
| in connection with direct placement, net | |||||||||||||||||||||||||||||||||||
| of issuance costs of $960 | – | – | 15,000 | 15 | – | – | 21,525 | – | – | – | 21,540 | ||||||||||||||||||||||||
| Compensation expense related to certain | |||||||||||||||||||||||||||||||||||
| stock options issued in 1999 and 2000 | – | – | – | – | – | – | – | – | 220 | – | 220 | ||||||||||||||||||||||||
| Balance at December 31, 2004 | 10 | $ | – | 95,358 | $ | 95 | – | $ | – | $ | 357,714 | $ | (355,984 | ) | $ | (41 | ) | $ | (32 | ) | $ | 1,752 | |||||||||||||
42
GENTA
INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Years Ended December 31, | ||||||||||||
| (In thousands) | 2004 | 2003 | 2002 | |||||||||
| Operating activities: | ||||||||||||
| Net loss | $ | (32,685 | ) | $ | (50,109 | ) | $ | (74,528 | ) | |||
| Items reflected in net loss not requiring cash: | ||||||||||||
| Depreciation and amortization | 3,003 | 2,383 | 1,646 | |||||||||
| Loss on disposition of property and equipment (Note 7) | 1,254 | 3 | 13 | |||||||||
| Non-cash reimbursement of research & development expense (Note 5 & 13) | (27,328 | ) | – | – | ||||||||
| Amortization of deferred revenues (Note 12) | (15,127 | ) | (5,237 | ) | (3,499 | ) | ||||||
| Provision for sales returns | 1,291 | 30 | – | |||||||||
| Provision for excess inventory (Note 6) | 1,350 | – | – | |||||||||
| Gain on extinguishment of debt (Note 14) | (11,495 | ) | – | – | ||||||||
| Write-off of acquired in-process research and development (Note 2) | – | 13,465 | – | |||||||||
| Compensation expense related to certain stock options issued in 1999 and 2000 (Note 18) | 220 | 436 | 1,016 | |||||||||
| Changes in operating assets and liabilities, net of effects of | ||||||||||||
| acquisition of Salus Therapeutics, Inc. in 2003: | ||||||||||||
| Accounts receivable (Note 5) | 15,509 | (2,131 | ) | (14,538 | ) | |||||||
| Inventory (Note 6) | (1,185 | ) | (518 | ) | – | |||||||
| Notes receivable (Note 8) | 3,542 | (3,542 | ) | – | ||||||||
| Prepaid expenses and other current assets | 574 | (817 | ) | (751 | ) | |||||||
| Accounts payable and accrued expenses | 58 | (17,404 | ) | 20,405 | ||||||||
| Deferred revenues (Note 12) | – | – | 50,000 | |||||||||
| Other assets | (141 | ) | (972 | ) | (142 | ) | ||||||
| Net cash used in operating activities | (61,160 | ) | (64,413 | ) | (20,378 | ) | ||||||
| Investing activities: | ||||||||||||
| Purchase of marketable securities (Note 3) | (7,281 | ) | (107,350 | ) | (88,317 | ) | ||||||
| Maturities and sales of marketable securities (Note 3) | 59,241 | 130,590 | 23,380 | |||||||||
| Purchase of property and equipment | (1,767 | ) | (3,293 | ) | (2,387 | ) | ||||||
| Proceeds from sale of equipment | 157 | – | – | |||||||||
| Cash paid for acquisition of Salus, net of cash acquired (Note 2) | – | (579 | ) | – | ||||||||
| Net cash provided by (used in) investing activities | 50,350 | 19,368 | (67,324 | ) | ||||||||
| Financing activities: | ||||||||||||
| Issuance of common stock, net (Note 17) | 21,598 | – | 71,035 | |||||||||
| Borrowings under long term debt (Note 13) | – | 35,000 | – | |||||||||
| Issuance of convertible debt (Note 14) | – | – | 10,000 | |||||||||
| Borrowings under note payable | 1,431 | 998 | 868 | |||||||||
| Repayments of note payable | (1,363 | ) | (740 | ) | (378 | ) | ||||||
| Purchase of treasury stock | – | (303 | ) | (2,506 | ) | |||||||
| Issuance of common stock upon exercise of warrants and options (Note 17 & 18) | 480 | 2,543 | 3,285 | |||||||||
| Net cash provided by financing activities | 22,146 | 37,498 | 82,304 | |||||||||
| Increase (decrease) in cash and cash equivalents | 11,336 | (7,547 | ) | (5,398 | ) | |||||||
| Cash and cash equivalents at beginning of year | 25,153 | 32,700 | 38,098 | |||||||||
| Cash and cash equivalents at end of year | $ | 36,489 | $ | 25,153 | $ | 32,700 | ||||||
See accompanying notes to consolidated financial statements.
43
GENTA
INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2004, 2003 and 2002
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.
The
Company has had recurring operating losses since its inception. Management
expects that such losses will continue at least until its lead product, Genasense®,
receives approval from the U.S. Food and Drug Administration (“FDA”) for
commercial sale in one or more indications. Achievement of profitability for the
Company is dependent on the timing of Genasense® regulatory approvals in the
U.S. and outside the U.S. A significant source of funds during the last
several years has been from the Company’s collaboration with Aventis, a member of
the sanofi-aventis Group (“Aventis”), regarding the development and
commercialization of Genasense®. On November 8, 2004 the Company received from
Aventis notice of termination of the agreements between Genta and Aventis.
Pursuant to those agreements, Aventis will continue to support the development of
Genasense® for a six-month period lasting until May 8, 2005. Although no
assurances can be expressed, management believes that at the current rate of spending,
the Company should have sufficient cash funds to maintain its present operations
through 2005. There are a number of alternatives available to the Company to sustain
its operations beyond 2005 should there be a delay in approval of Genasense®.
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 accounting principles
generally accepted in the United States. All professional accounting standards that
are effective as of December 31, 2004 have been considered in preparing the
consolidated financial statements. Such financial statements include the accounts
of the Company and all majority-owned subsidiaries. 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. Certain reclassifications have been made to prior-year
amounts to conform to current-year presentation.
44
Revenue
Recognition
In
April 2002, the Company entered into a development and commercialization
agreement (“Collaborative Agreement”) with Aventis. Under the terms of the
Collaborative Agreement, the Company and Aventis would jointly develop and
commercialize Genasense® in the U.S., and Aventis would have exclusive
development and marketing rights to the compound in all countries outside of the U.S.
Under the Collaborative Agreement, Aventis would pay 75% of U.S. New Drug
Application (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. On November 8, 2004 Aventis gave notice to
Genta that it was terminating its Collaborative Agreement with the Company. Under
the terms of the agreement, Aventis will continue to fund ongoing development
activities through May 8, 2005.
The
Company follows the provisions of the Securities and Exchange Commission’s
Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition and Emerging Issues
Task Force (EITF) No. 00-21 , Accounting for Revenue Arrangements with Multiple
Deliverables.
In
accordance with EITF No. 00-21 the Company analyzes its multiple element arrangements
to determine whether the elements can be separated and accounted for individually as
separate units of accounting. The Company recognizes license payments as revenue
if the license has stand-alone value and the fair value of the undelivered items
can be determined. If the license is considered to have stand-alone value but the
fair value on any of the undelivered items cannot be determined, the license
payments are recognized as revenue over the period of performance for such
undelivered items or services. The Company’s estimate of the period of
performance involves management judgment. Amounts received for milestones are
recognized upon achievement of the milestone, as long as the milestone is deemed to be
substantive and the Company has no other performance obligations.
The
Company determined that, due to the nature of the ongoing development work
related to our Collaborative Agreement with Aventis, the end of the development
phase and the fair value of the undelivered elements were not determinable.
Accordingly, the Company deferred recognition of the initial licensing fee and
up-front development funding received from Aventis and recognized these payments
on a straight-line basis over the original estimated useful life of the related
first-to-expire patent of 115 months. As a result of the notice of termination of the
agreement with Aventis, the Company determined that the period over which the
remaining deferred revenue should be recognized will be through May 8, 2005. In
accordance with EITF No. 00-21 and SAB No. 104, the Company has reclassified the
remaining deferred revenue as current and will recognize such revenue through May 8,
2005.
Genta
recognizes revenue from product sales when title to product and associated risk of
loss has passed to the customer and the Company is reasonably assured of collecting
payment for the sale. All revenue from product sales are recorded net of
applicable allowances for returns, rebates and other applicable discounts and
allowances. The Company allows return of its product for up to twelve months
after product expiration. In May 2004 the Company eliminated its sales force and
significantly reduced its marketing support for Ganite®. After evaluating
various options, the Company decided during the third quarter of 2004 to continue
selective marketing support of the product. In December 2004, a wholesaler
contacted the Company to return a significant portion of its inventory of Ganite®.
The Company agreed to the return of this product and recorded a provision for sales
returns, as well as provided for potential returns from other wholesalers. The
Company’s provision for sales returns increased by $1.2 million in 2004.
Research and
Development
Research
and development costs are expensed as incurred, including raw material costs
required to manufacture products for clinical trials. Reimbursements for
applicable Genasense®-related costs, under the Collaborative Agreement, have
been recorded as a reduction to expenses in the Consolidated Statement of
Operations. Research and development expenses in 2003 include $13.5 million from
the write-off of acquired in-process research and development related to the
acquisition of Salus Therapeutics, Inc. in August 2003.
45
Cash, Cash
Equivalents and Marketable Securities
The
carrying amounts of cash, cash equivalents and marketable securities approximate
fair value due to the short-term nature of these instruments. Marketable securities
primarily consist of government securities, all of which are classified as
available-for-sale marketable securities. Management determines the appropriate
classification of securities at the time of purchase and reassesses the classification
at each reporting date.
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. If such evaluation were to indicate an impairment of
assets, such impairment would be recognized by a write-down of the applicable
assets. Based on the valuation, no impairment was indicated in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets.
Intangible
Assets
Intangible
assets, consisting of 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. If such evaluation were to indicate an
impairment of these assets, such impairment would be recognized by a write-down of
the applicable assets. Based on the valuation, no impairment was indicated in
accordance with SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets.
Inventories
Inventories
are stated at the lower of cost or market with cost being determined using the
first-in, first-out (FIFO) method.
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.
Management
records 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. The Company reviewed its deferred tax assets
and at both December 31, 2004 and December 31, 2003, used a valuation allowance
to reduce these assets to zero to reflect that, more likely than not, they will not
be realized.
46
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 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 EITF 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 (“FIN”) No. 28, over the vesting
period of each respective option, which is generally four years.
In
December 2004, the FASB issued SFAS No. 123(R) Share-Based Payment that will
require compensation costs related to share-based payment transactions to be
recognized in the financial statements. With limited exceptions, the amount of
compensation cost will be measured based on the grant-date fair value of the
equity or liability instruments issued. In addition, liability awards will be
remeasured each reporting period. Compensation cost will be recognized over the
period that an employee provides service in exchange for the award. SFAS No.
123(R) replaces SFAS No. 123, Accounting for Stock-Based Compensation, and
supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. The Company
will adopt the provisions of SFAS No. 123R in 2005. The Company is evaluating the
impact that the adoption of this standard will have on its results of
operations, financial position or cash flows.
In
December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure - Amendment of FASB SFAS 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 and amends the
disclosure requirements of SFAS No. 123. 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:
| Years Ended December 31, | ||||||||||||
| ($ thousands, except per share data) | 2004 | 2003 | 2002 | |||||||||
| Net loss applicable to common shares, as reported | $ | (32,685 | ) | $ | (50,109 | ) | $ | (74,528 | ) | |||
| Add: Equity related employee compensation expense related to certain stock options | ||||||||||||
| issued in 1999 and 2000 included in reported net income, net of related tax effects | 220 | 436 | 1,016 | |||||||||
| Deduct: Total stock-based employee compensation expense determined under fair value | ||||||||||||
| based method for all awards, net of related tax effects | (7,236 | ) | (7,644 | ) | (6,840 | ) | ||||||
| Pro forma net loss | $ | (39,701 | ) | $ | (57,317 | ) | $ | (80,352 | ) | |||
| Net loss per share attributable to common shareholders: | ||||||||||||
| As reported: Basic and diluted | $ | (0.41 | ) | $ | (0.67 | ) | $ | (1.05 | ) | |||
| Pro forma: Basic and diluted | $ | (0.50 | ) | $ | (0.76 | ) | $ | (1.14 | ) | |||
The pro-forma
disclosure shown above was calculated for all options using the Black-Scholes
option-pricing model with the following assumptions:
| Years Ended December 31, | |||||||||||
| 2004 | 2003 | 2002 | |||||||||
| Risk-free interest rate | 3.5 | % | 3.3 | % | 2.8 | % | |||||
| Dividend yield | – | – | – | ||||||||
| Expected life (years) | 4.0 | 4.0 | 4.0 | ||||||||
| Volatility | 98 | % | 58 | % | 65 | % | |||||
47
Net Loss Per
Common Share
Net
loss per common share for the twelve months ended December 31, 2004, 2003 and 2002,
respectively, are 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 11.4 million, 18.0 million and
16.7 million in 2004, 2003 and 2002, respectively, have been excluded from the
calculation of the diluted net loss per common share because the inclusion of such
securities would be antidilutive.
Recently Issued
Accounting Standards
In
December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment,
which will require compensation costs related to share-based payment transactions
to be recognized in the financial statements. With limited exceptions, the amount
of compensation cost will be measured based on the grant-date fair value of
the equity or liability instruments issued. In addition, liability awards will
be remeasured each reporting period. Compensation cost will be recognized over
the period that an employee provides service in exchange for the award. SFAS
No. 123(R) replaces FASB SFAS No. 123, Accounting for Stock-Based Compensation,
and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees.
The Company will adopt the provisions of FAS No. 123R in 2005. The Company is
evaluating the impact that the adoption of this standard will have on its results
of operations, financial position or cash flows.
In
December 2004, the FASB issued SFAS No. 153, Exchanges of Non-monetary Assets,
an amendment of APB Opinion No. 29. The Company does not expect that the adoption
of this statement will have any impact on the Company’s results of operations,
financial position or cash flows.
In
November 2004, the FASB issued SFAS No. 151, Inventory Costs, to clarify
the accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material. As the Company uses third-party manufacturers and
does not manufacture its own products, the Company does not expect that the
adoption of this statement will have a material impact on its results of operations,
financial position or cash flows.
3. Marketable
Securities
The
carrying amounts of the company’s marketable securities, which primarily consist
of government securities, approximate fair value due to the short-term nature of
these instruments. The fair value of marketable securities is as follows ($
thousands):
|
Amortized costs |
Unrealized gains |
Unrealized losses |
Fair value | |||||||||||
| December 31, 2004 | $ | 5,790 | $ | 10 | $ | (42 | ) | $ | 5,758 | |||||
| December 31, 2003 | $ | 57,751 | $ | 29 | $ | (4 | ) | $ | 57,776 | |||||
The fair value of marketable securities by contractual maturity, is as follows ($
thousands):
| December 31, | ||||||||
| 2004 | 2003 | |||||||
| Due within one year | $ | 5,758 | $ | 20,950 | ||||
| Due after one year | – | 36,826 | ||||||
| $ | 5,758 | $ | 57,776 | |||||
The
fair value of each marketable security has been compared to its cost and
therefore, an unrealized loss of approximately $32 thousand has been recognized in
accumulated other comprehensive loss at December 31, 2004.
48
4.
Collaborative Agreement
In
April 2002, the Company entered into a development and commercialization
agreement (“Collaborative Agreement”) with Aventis. Under the terms of the
Collaborative Agreement, Genta and Aventis would jointly develop and commercialize
Genasense® in the U.S, and Aventis would have exclusive development and marketing
rights to the compound in all countries outside the U.S. Under the Collaborative
Agreement Aventis paid 75% of the U.S. NDA-directed development costs incurred by
either Genta or Aventis and 100% of all other development, marketing, and sales costs
incurred within the U.S. and elsewhere as subject to the Collaborative Agreement.
An analysis of expenses reimbursed under the Collaborative Agreement follows ($
thousands):
| Twelve
Months Ended December 31, |
|||||||||||
| |
|||||||||||
| 2004 | 2003 | 2002 | |||||||||
| Research and development expenses, gross | $ | 71,494 | $ | 83,084 | $ | 87,162 | |||||
| Less expense reimbursement | (43,292 | ) | (55,891 | ) | (27,746 | ) | |||||
| Research and development expenses, net | $ | 28,202 | $ | 27,193 | $ | 59,416 | |||||
| Selling, general and administrative expenses, gross | 28,576 | $ | 29,831 | $ | 20,551 | ||||||
| Less expense reimbursement | – | – | (705 | ) | |||||||
| Selling, general and administrative expenses, net | $ | 28,576 | $ | 29,831 | $ | 19,846 | |||||
5. Accounts
Receivable-Net
Once
Aventis provided notice of termination of the Collaborative Agreement, all payments
otherwise due from Aventis are applied against any balance on the Line of Credit
until the Line of Credit is repaid. Accordingly, the Accounts receivable-net balance
at December 31, 2004 does not include any reimbursement from Aventis, as
reimbursement due from Aventis has been applied to the Line of Credit.
At
December 31, 2003, the balance of Accounts receivable-net of $16.7 million was
comprised of $15.5 million in net expense reimbursements due from Aventis for
various third-party costs, internal costs of scientific and technical personnel and
Genasense® drug supply costs and $1.2 million related to the sale of Ganite®,
net of allowances of $0.1 million.
6. Inventory
Inventories
are stated at the lower of cost or market with cost being determined using the
first-in, first-out (FIFO) method. Inventories consisted of the following ($
thousands):
| December 31 | ||||||||
| 2004 | 2003 | |||||||
| Raw materials | $ | 21 | $ | 189 | ||||
| Work in process | – | 318 | ||||||
| Finished goods | 333 | 11 | ||||||
| $ | 354 | $ | 518 | |||||
In
May 2004, the Company eliminated its sales force and significantly reduced its
marketing support for Ganite®. After evaluating various options, the Company
decided during the third quarter to continue selective marketing support of the
product. During 2004, the Company recorded provisions for excess Ganite® inventory
of $1.4 million.
49
7. Property and
Equipment, Net
Property and
equipment
is comprised of the following ($ thousands):
|
Estimated Useful Lives |
December 31, | ||||||||||
| 2004 | 2003 | ||||||||||
| Computer equipment | 3 | $ | 2,860 | $ | 3,337 | ||||||
| Software | 3 | 3,349 | 2,632 | ||||||||
| Furniture and fixtures | 5 | 936 | 1,009 | ||||||||
| Leasehold improvements | Life of lease | 443 | 767 | ||||||||
| Equipment | 5 | 166 | 299 | ||||||||
| 7,754 | 8,044 | ||||||||||
| Less accumulated depreciation and amortization | (4,907 | ) | (3,127 | ) | |||||||
| $ | 2,847 | $ | 4,917 | ||||||||
In
August 2004, the Company completed the closure of its research facility in Salt Lake
City, Utah, sold all related equipment and assigned its lease on this facility to
another company. Additionally, the Company disposed of excess equipment at corporate
headquarters. As a result of these actions, the Company recorded a loss of
approximately $1.3 million.
8. Notes
Receivable
At
December 31, 2003, the Company had a note receivable of $3.5 million relating to
advance financing provided to Avecia Biotechnology, Inc. (“Avecia”) for
facility expansion, which was to be repaid with interest through future payments
determined as a function of future drug substance purchases by Genta. Based on
negotiations between the two companies, amounts owed to the Company under this note
were offset against amounts payable to Avecia, resulting in a non-cash reduction to
Note receivable and Accounts payable and accrued expenses of approximately $4.2
million.
9. Intangibles
Intangible
assets consist of the following ($ thousands):
| December 31, | ||||||||
| 2004 | 2003 | |||||||
| Patent and patent applications | $ | 3,992 | $ | 3,992 | ||||
| Less accumulated amortization | (3,706 | ) | (3,129 | ) | ||||
| $ | 286 | $ | 863 | |||||
The remaining
intangible asset amount will be fully amortized in 2005.
10. Prepaid
Royalties
In
December 2000, the Company recorded $1.3 million as the fair value for its
commitment to issue 162,338 shares of common stock to a major university as
consideration for an amendment to a license agreement initially executed on
August 1, 1991 related to antisense technology licensed from the university. The
amendment provided for a reduction in the royalty percentage rate to be paid to the
university based on the volume of sales of the Company’s products containing the
antisense technology licensed from such university. These shares were issued in the
first quarter of 2001. The Company will amortize the prepaid royalties upon the
commercialization of Genasense® through the term of the arrangement, which
expires twelve years from the date of first commercial sale.
50
11. Accounts
Payable and Accrued Expenses
Accounts
payable and accrued expenses is comprised of the following ($ thousands):
| December 31, | ||||||||
| 2004 | 2003 | |||||||
| Accounts payable | $ | 5,683 | $ | 6,462 | ||||
| Accrued compensation | 1,957 | 2,516 | ||||||
| Accrued interest | – | 1,235 | ||||||
| Reserve for sales returns | 1,261 | – | ||||||
| Other accrued expenses | 5,523 | 5,106 | ||||||
| $ | 14,424 | $ | 15,319 | |||||
12. Deferred
Revenues
As
of December 31, 2004, the Company had recorded $26.2 million, net of amortization
in current deferred revenues relating to the initial $10.0 million licensing
fee and $40.0 million development funding received from Aventis under the
Collaborative Agreement. On November 8, 2004, Aventis gave notice to Genta that it
was terminating the Collaborative Agreement. Under the terms of the agreement,
Aventis will continue to fund ongoing development activities through May 8, 2005.
As a result of the notice of termination of the agreements with Aventis, the
Company has determined that the period over which the remaining deferred revenue
should be recognized will be through May 8, 2005. In accordance with EITF No. 00-21
and SAB No. 104, the Company has reclassified the remaining deferred revenue as
current and will recognize such revenue through May 8, 2005.
13. Short Term
Debt
This
revolving debt was issued in connection with an amendment, dated March 14, 2003, to
the Collaborative Agreement that established a line of credit related to the
development, manufacturing and commercialization of Genasense® (“Line of
Credit”). The debt was considered an advance against both past and future
costs and the borrowing base was adjusted on a monthly basis. Prior to June 30, 2004
the Line of Credit was classified as long-term debt and beginning June 30, 2004, it
was classified as short-term debt. During 2004, as a result of certain non-cash
transactions, the Company reduced amounts owed under the Line of Credit by $27.7
million. As a result of Aventis’ purchase commitments to Genta, in September the
Company supplied $15.5 million of vialed Genasense® drug product and Genasense® bulk
drug substance to Aventis. This amount is included in the Company’s
Consolidated Statement of Operations as Aventis reimbursement. The companies
agreed to offset amounts owed under the Line of Credit by $14.8 million and
accrued interest on the Line of Credit by $0.7 million. With the Aventis notice
of termination, Genta cannot borrow additional funds and the Line of Credit must be
repaid no later than May 8, 2005. All payments otherwise due to Genta are applied
against any balance on the Line of Credit until the Line of Credit is repaid. The
Company expects that a substantial portion of the $7.3 million outstanding on the
Line of Credit will be repaid through the application of reimbursements. In
2004, $12.9 million of reimbursement due from Aventis was applied to the balance of the
Line of Credit.
The
terms of the Line of Credit provide for a favorable interest rate of the three-month
London Interbank Offered Rate plus .35% per annum, compounded quarterly, which
is set two days prior to the first day of each calendar quarter. As security
for the repayment of the Line of Credit, Genta has granted Aventis a security
interest in all of its rights to payments under the Collaborative Agreement,
as well as all inventory related to Genasense®.
51
14. Convertible
Debt
On
November 8, 2004, Aventis gave notice to Genta that it was terminating its Collaborative
Agreement with the Company. Under the terms of the Agreement, Aventis has forgiven the
$10.0 million of convertible debt, along with its accrued interest, issued to them in
connection with the collaboration, resulting in a gain on extinguishment of debt of
$11.5 million.
15. Income
Taxes
Significant
components of the Company’s deferred tax assets as of December 31, 2004 and 2003
and related valuation reserves are presented below ($ thousands):
| December 31, | ||||||||
| 2004 | 2003 | |||||||
| Deferred tax assets: | ||||||||
| Deferred compensation | $ | 754 | $ | 658 | ||||
| Net operating loss carryforwards | 74,138 | 90,861 | ||||||
| Research and development credit carryforwards | 96,009 | 75,028 | ||||||
| Purchased technology and license fees | 4,850 | 4,850 | ||||||
| Deferred revenue - current | 11,540 | 2,326 | ||||||
| Deferred revenue - non-current | – | 15,869 | ||||||
| New Jersey Alternative Minimum Assessment (AMA) Tax | 182 | 182 | ||||||
| New Jersey research and development credits | 7,558 | 4,093 | ||||||
| Provision for excess inventory | 2,656 | – | ||||||
| Reserve for product returns | 568 | – | ||||||
| Other, net | 266 | 241 | ||||||
| 198,521 | 194,108 | |||||||
| Valuation allowance for deferred tax assets | (198,505 | ) | (193,491 | ) | ||||
| Net deferred tax assets | 16 | 617 | ||||||
| Deferred tax liabilities: | ||||||||
| Depreciation, net | (16 | ) | (617 | ) | ||||
| Net deferred tax assets (liabilities) | $ | – | $ | – | ||||
A
full valuation allowance has been provided at December 31, 2004 and 2003,
respectively, to reserve for deferred tax assets, as it appears more likely than
not that net deferred tax assets will not be realized.
New
Jersey has enacted legislation permitting certain corporations located in New Jersey
to sell state tax loss carryforwards and state research and development credits.
During 2004, New Jersey allowed the Company to sell $11.6 million of its net operating
loss carryforwards and the Company received $0.9 million from the sale, which
was recognized as Income tax benefit.
If
still available under New Jersey law, the Company will attempt to sell its tax loss
carryforwards in 2005. The Company can not be assured that the New Jersey program
will continue next year, nor can the Company estimate what percentage of its
saleable tax benefits New Jersey will permit it to sell, how much money will be
received in connection with the sale, or if the Company will be able to find a
buyer for its tax benefits.
At
December 31, 2004, the Company has federal and state net operating loss
carryforwards of approximately $169.8 million and $171.9 million, respectively. The
federal tax loss carryforwards began expiring in 2003. The Company also has federal
research and development credit carryforwards of $96.0 million, which began expiring in
2003.
52
16. Operating
Leases
At
December 31, 2004 and December 31, 2003, the Company maintained $1.6 million and
$1.5 million, respectively, in restricted cash balances with financial
institutions related to lease obligations on its corporate facilities and leased
fleet vehicles. Such restricted cash balances collateralize letters of credit
issued by the financial institutions in favor of the Company’s landlord with
respect to corporate facilities and to a financial institution with respect to
leased fleet vehicles.
Future
minimum obligations under operating leases at December 31, 2004 are as follows ($
thousands):
| Operating Leases | |||||
| 2005 | $ | 2,568 | |||
| 2006 | 2,669 | ||||
| 2007 | 2,661 | ||||
| 2008 | 2,595 | ||||
| 2009 | 2,576 | ||||
| Thereafter | 429 | ||||
| $ | 13,498 | ||||
Annual
rent expense incurred by the Company in 2004 and 2003 was $2.5 million and $2.2
million, respectively.
17.
Stockholders’ Equity
Common
Stock
In
August 2003, the Company issued 1.03 million shares of its common stock, with a
fair value of $13.0 million, to Salus stockholders, in connection with its
purchase of Salus Therapeutics in exchange for all of the outstanding shares of Salus
preferred stock.
In
March 2004, the Board of Directors approved an amendment to increase the authorized
common stock to 150.0 million shares from 120.0 million. In June 2004, shareholders
approved this amendment at the Annual Meeting of Stockholders.
In
December 2004, the Company issued 15.0 million shares of its common stock through a
direct placement with two institutions and received net proceeds of approximately $21.6
million.
Preferred
Stock
The
Company has authorized 5.0 million shares of preferred stock and has issued and
outstanding 9,700 shares of Series A Convertible Preferred Stock as of December 31,
2004.
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,
2004 and 2003, each share of Series A Preferred Stock was convertible into 8.4274
and 7.3967 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 $0.5 million
at December 31, 2004.
In
February 2004, substantially all of the Series A Preferred Stock was converted into
shares of the Company’s Common Stock.
53
Warrants
Summary
information with respect to outstanding common stock warrants at December 31, 2004
is presented below:
| Outstanding Warrants | Exercise Price |
Potential
Warrant Exercise Proceeds |
Common
Equivalents |
Expiration Date |
||||||||
| |
||||||||||||
| June 1997 | $ | 0.86 | $ | 22,320 | 25,954 | December 2007 | ||||||
| August 1999 Androgenics | $ | 1.25 | 100,000 | 80,000 | August 2006 | |||||||
| December 1999 | ||||||||||||
| $ | 3.02 | 372,091 | 123,209 | June 2007 | ||||||||
| $ | 4.71 | 316,027 | 67,097 | June 2007 | ||||||||
| $ | 4.25 | 187,591 | 44,139 | May 2005 | ||||||||
| September 2000 | $ | 6.75 | 76,214 | 11,291 | September 2005 | |||||||
| $ | 1,074,243 | 351,690 | ||||||||||
In
June 1997, in connection with a private equity placement, a series of warrants
were issued. The remaining outstanding warrants are exercisable and can be converted
into approximately 26 thousand common shares; they expire in December 2007.
In
August 1999, the Company acquired Androgenics Technologies, Inc. (“Androgenics”)
and as part of that acquisition, issued a series of warrants. The outstanding
warrants that are exercisable can be converted into 80 thousand common shares; they
expire in August 2006.
In
December 1999, in connection with a private equity placement, a series of warrants were
issued. The remaining outstanding warrants are exercisable and can be converted
into a total of approximately 234 thousand common shares. These warrants expire
in May 2005 or in June 2007.
In
September 2000, in connection with a private equity placement, a series of warrants
were issued. The remaining outstanding warrants are exercisable and can be converted
into approximately 11 thousand common shares; they expire in September 2005.
Common
Stock Reserved
At
December 31, 2004, an aggregate of 11.5 million shares of common stock were
reserved for the conversion of preferred stock and the exercise of outstanding
options and warrants.
18. Employee
Benefit Plans
1998
Plan
Pursuant
to the Company’s 1998 Stock Incentive Plan as amended (the “1998 Plan”),
18.5 million shares have been provided for the grant of stock options to employees,
directors, consultants and advisors of the Company. In March 2004, 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 18.5 million shares
from 17.0 million. In June 2004, the stockholders 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 ten 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.
54
During
1999 and 2000, the Company granted to certain key employees, 6,188,250 and
325,000 options, respectively. Such options were granted with exercise prices
below the market value of the Company’s common stock on the date of the
grant. Accordingly, the Company recorded deferred compensation of $2.0 million and
$0.1 million in 1999 and 2000 attributable to the intrinsic value of these options
and amortized $0.2 million, $0.2 million and $0.7 million as non-cash equity related
compensation expense in 2004, 2003 and 2002, respectively.
In
2001, the Company granted options to purchase common stock to members of Genta’s
Scientific Advisory Board, for which the Company recorded a total of $0.7 million
in deferred compensation, of which $0.2 million and $0.3 million was amortized as
non-cash equity related compensation expense in 2003 and 2002, respectively.
The
Company’s employees were granted 1,442,000, 2,468,300 and 1,274,400 stock
options with exercise prices equal to the fair value on the date of grant in 2004,
2003 and 2002, respectively. Summary information with respect to the Company’s
1998 Stock Plan is as follows:
| 1998 Plan | Shares
Under Option |
Weighted Average Exercise Price Per Share |
||||||
| |
||||||||
| 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 | |||||
| Granted | 2,468,300 | 9.85 | ||||||
| Exercised | (834,400 | ) | 1.87 | |||||
| Canceled | (262,425 | ) | 10.75 | |||||
| Balance at December 31, 2003 | 9,871,087 | $ | 6.23 | |||||
| Granted | 1,442,000 | 7.56 | ||||||
| Exercised | (79,775 | ) | 2.76 | |||||
| Canceled | (1,239,492 | ) | 9.97 | |||||
| Balance at December 31, 2004 | 9,993,820 | $ | 5.99 | |||||
At
December 31, 2004, options to purchase 5,570,729 shares of common stock were
exercisable at a weighted average exercise price of approximately $4.51 per share and
3,851,323 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. 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 24,000 options upon election to the Board of
Directors. Each option granted shall become exercisable over a three-year
period. In addition, annually, each director receives 20,000 options at the first
Board of Directors meeting they attend. Each option granted shall become
exercisable in full on the date of grant.
In
June 2004, the stockholders approved an amendment to the 1998 Directors’ Plan at
the Annual Meeting of Stockholders, whereby the Lead Director and Non-Employee
Chairperson of a Committee of the Board of Directors are granted an annual option to
purchase 5,000 shares of common stock. Each option granted shall become exercisable
in full on the date of grant.
The
Company’s directors were granted stock options to purchase a total of 160,000,
184,000 and 174,667 shares of common stock in 2004, 2003 and 2002, respectively,
with an exercise price equal to the fair market value of the common stock on the date
of grant.
55
Summary
information with respect to the Company’s 1998 Directors’ Plan is as follows:
| 1998 Directors’ Plan | Shares
Under Option |
Weighted Average Exercise Price Per Share |
||||||
| |
||||||||
| 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 | |||||
| Granted | 184,000 | 7.98 | ||||||
| Exercised | (100,000 | ) | 8.66 | |||||
| Canceled | (20,000 | ) | 13.66 | |||||
| Balance at December 31, 2003 | 928,336 | $ | 7.26 | |||||
| Granted | 160,000 | 8.16 | ||||||
| Exercised | (4,500 | ) | 6.86 | |||||
| Canceled | (59,500 | ) | 10.33 | |||||
| Balance at December 31, 2004 | 1,024,336 | $ | 7.17 | |||||
At
December 31, 2004, options granted under the Directors’ Plan to purchase 992,335
shares of common stock were exercisable at a weighted average exercise price of
approximately $7.04 per share and 322,877 shares of common stock were available
for grant or sale under the Directors’ Plan.
In
2002, a combined total of 1,449,067 options were granted pursuant to the 1998
Plan and 1998 Directors Plan at fair market value with a weighted average grant date
fair value of $11.81 per share. In 2003, a combined total of 2,656,300 options were
granted pursuant to the 1998 Plan and 1998 Directors Plan at fair market value
with a weighted average grant date fair value of $9.72 per share. In 2004, a total
of 1,602,000 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 $7.62 per
share. No options were granted below fair market value in 2004, 2003 or 2002.
An
analysis of all options outstanding as of December 31, 2004 is presented below:
| Range of Prices |
Options Outstanding |
Weighted
Average Remaining Life in Years |
Weighted Average Exercise Price |
Options Exercisable |
Weighted Average Exercise Price of Options Exercisable |
|||||||||||
| $0.94 - $3.25 | 5,550,462 | 5.2 | $ | 2.61 | 4,259,385 | $ | 2.61 | |||||||||
| $5.63 - $6.89 | 927,033 | 6.4 | $ | 6.31 | 727,658 | $ | 6.39 | |||||||||
| $7.08 - $8.97 | 1,427,771 | 7.1 | $ | 7.90 | 802,882 | $ | 7.95 | |||||||||
| $9.02 - $10.99 | 1,815,000 | 8.6 | $ | 10.04 | 208,025 | $ | 10.09 | |||||||||
| $11.04 -$18.25 | 1,297,889 | 7.6 | $ | 13.38 | 565,114 | $ | 13.95 | |||||||||
| 11,018,155 | 6.4 | $ | 6.10 | 6,563,064 | $ | 4.89 | ||||||||||
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
$0.7 million, $0.6 million and $0.3 million for 2004, 2003 and 2002, respectively.
56
19. Commitments
and Contingencies
Litigation
and Potential Claims
In
2004, numerous complaints were filed in the United States District Court for
the District of New Jersey against Genta and certain of our principal officers
on behalf of purported classes of our shareholders who purchased our securities
during several class periods. The complaints have been consolidated into a single
action and allege that the Company and certain of its principal officers violated
the federal securities laws by issuing materially false and misleading statements
regarding Genasense®
for the treatment of melanoma that had the effect of artificially inflating
the market price of our securities. The shareholder class action complaint in
the various actions seeks monetary damages in an unspecified amount and recovery
of plaintiffs’ costs and attorneys’ fees. In addition, three shareholder
derivative actions have been filed against the directors and certain officers
of Genta in New Jersey State and Federal courts. Based on facts substantially
similar to those asserted in the shareholder class actions, the derivative plaintiffs
claim that defendants have breached their fiduciary duties to the shareholders
and other violations of New Jersey law. The Company believes these litigations
are without merit and will vigorously defend against these suits.
Under
Genta’s directors and officers’ liability insurance coverage, the
Company is liable for the first $1.0 million of legal expenses. As it is reasonably
certain that the Company will incur these expenses, $1.0 million was recorded in June
2004.
Management
does not believe that this litigation will have a material adverse impact on the
Company’s financial results or liquidity.
Contractual
Obligations
Future
contractual obligations at December 31, 2004 are as follows ($ thousands):
| Total | Less
than 1 year |
1 - 3 years | 3 - 5 years | More
than 5 years |
|||||||||||||
| Short term debt obligations (1) | $ | 7,312 | $ | 7,312 | $ | – | $ | – | $ | – | |||||||
| Operating lease obligations | 13,498 | 2,568 | 5,330 | 5,171 | 429 | ||||||||||||
| Total | $ | 20,810 | $ | 9,880 | $ | 5,330 | $ | 5,171 | $ | 429 | |||||||
(1)
Consists of amounts outstanding on the line of credit with Aventis, which are due on May
8, 2005.
Not
included in the above table are any Genasense® bulk drug purchase obligations
to Avecia per the terms of the Manufacturing and Supply Agreement entered into
between Avecia and Genta in December 2002. The agreement calls for Genta to
purchase a percentage of our global Genasense® bulk drug requirements from Avecia
during the term of the agreement. Due to the uncertainties regarding the timing of
any Genasense® approval and sales/volume projections, specific obligation amounts
cannot be estimated at this time. Due to past purchases of Genasense® bulk drug
substance, the Company has access to sufficient drug for its current needs.
20.
Supplemental Disclosure of Cash Flows Information and Non-cash Investing and Financing
Activities
During
2004, as a result of certain non-cash transactions, the Company reduced amounts
owed under the Line of Credit by $27.7 million. In September the Company supplied
$15.5 million of vialed Genasense® drug product and Genasense® bulk drug
substance to Aventis. This amount is included in the Company’s Consolidated
Statement of Operations as Aventis reimbursement. The companies agreed to offset
amounts owed under the Line of Credit by $14.8 million and accrued interest on the
Line of Credit by $0.7 million. With the Aventis notice of termination, Genta cannot
borrow additional funds and the Line of Credit must be repaid no later than May 8,
2005. All payments otherwise due to Genta are applied against any balance on the
Line of Credit until the Line of Credit is repaid. In 2004, $12.9 million of
reimbursement due to Genta was applied to the balance of the Line of Credit.
57
Based
on negotiations between the Company and Avecia, amounts owed to Genta under
a note receivable from Avecia were offset against amounts payable to Avecia,
resulting in a non-cash reduction to Note receivable and Accounts payable and
accrued expenses of approximately $4.2 million.
No
interest was paid for the twelve months ended December 31, 2004, 2003, and 2002,
respectively.
21. Selected
Quarterly Financial Data (Unaudited)
The
Company has experienced significant quarterly fluctuations in operating results and
it expects that these fluctuations will continue.
| Quarter Ended | ||||||||||||||
| 2004 | ||||||||||||||
| ($ thousands, except per share data) | Mar. 31 | Jun. 30 | Sep. 30 | Dec. 31 | ||||||||||
| Revenues | $ | 1,682 | $ | 1,561 | $ | 1,397 | $ | 9,975 | ||||||
| Gross Margin | 1,589 | 1,509 | 685 | 9,313 | ||||||||||
| Operating expenses-net | 14,144 | 30,698 | 6,129 | 7,063 | ||||||||||
| Net (loss) income | (12,532 | ) | (29,155 | ) | (5,580 | ) | 14,582 | |||||||
| Net (loss) income per common share: | ||||||||||||||
| Basic and diluted * | $ | (0.16 | ) | $ | (0.37 | ) | $ | (0.07 | ) | $ | 0.18 | |||
*
Net (loss) income per common share is calculated independently for each quarter
and the full year based upon respective average shares outstanding. Therefore, the sum
of the quarterly amounts may not equal the annual amounts reported |
For
the quarter ended December 31, 2004 the Company reported income of $14.6 million or
$.18 per share. With the Aventis notice of termination, Aventis has forgiven the
$10.0 million of convertible debt issued to them in connection with the
collaboration, resulting in a gain on extinguishment of debt of $11.5 million. In
addition, the Aventis notice of termination resulted in the acceleration of the
recognition of previously deferred revenue over a six-month period beginning
November 9, 2004. As a result, revenue recognized in the quarter ended December 31,
2004 increased $9.9 million.
| 2003 | ||||||||||||||
| ($ thousands, except per share data) | Mar. 31 | Jun. 30 | Sep. 30 | Dec. 31 | ||||||||||
| Revenues | $ | 1,309 | $ | 1,320 | $ | 1,296 | $ | 2,734 | ||||||
| Gross Margin | 1,309 | 1,320 | 1,296 | 2,330 | ||||||||||
| Operating expenses-net | 11,224 | 4,953 | 18,612 | 22,238 | ||||||||||
| Net loss | (9,603 | ) | (3,418 | ) | (17,165 | ) | (19,923 | ) | ||||||
| Net loss per common share: | ||||||||||||||
| Basic and diluted | $ | (0.13 | ) | $ | (0.05 | ) | $ | (0.23 | ) | $ | (0.26 | ) | ||
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
58
| Item 9A. | Controls and Procedures |
Conclusion
Regarding the Effectiveness of Disclosure Controls and Procedures
As
required by Rule 13a-15(b), Genta’s Chief Executive Officer and Chief Financial
Officer conducted an evaluation as of the end of the period covered by this report
of the effectiveness of the Company’s “disclosure controls and procedures” (as
defined in Exchange Act Rule 13a-15(e)). Based on that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the Company’s disclosure
controls and procedures were operating effectively as of the end of the period covered
by this report.
Management’s
Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rules
13a-15(f). Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
conducted an evaluation of the effectiveness of our internal control over financial
reporting based on the framework in Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on our evaluation under the framework in Internal Control — Integrated
Framework, our management concluded that our internal control over financial
reporting was effective as of December 31, 2004. Our management’s assessment of
the effectiveness of our internal control over financial reporting as of December
31, 2004 has been audited by Deloitte & Touche LLP, an independent registered
public accounting firm, as stated in their report which is included herein.
Changes in
Internal Control Over Financial Reporting
There
were no changes in our internal control over financial reporting identified in
connection with the evaluation required by paragraph (d) of Exchange Act Rule 13a-15
that occurred during the last fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
59
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
of
Genta Incorporated:
We
have audited management’s assessment, included in Item 9A Controls and
Procedures – Management’s Report on Internal Control Over Financial
Reporting, that Genta Incorporated and subsidiaries (the “Company”)
maintained effective internal control over financial reporting as of December
31, 2004 based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. The Company’s management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility
is to express an opinion on management’s assessment and an opinion on the
effectiveness of the Company’s internal control over financial reporting
based on our audit.
We
conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial
reporting, evaluating management’s assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinions.
A
company’s internal control over financial reporting is a process designed by,
or under the supervision of, the company’s principal executive and
principal financial officers, or persons performing similar functions, and
effected by the company’s board of directors, management, and other personnel
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3)
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because
of the inherent limitations of internal control over financial reporting, including
the possibility of collusion or improper management override of controls, material
misstatements due to error or fraud may not be prevented or detected on a timely
basis. Also, projections of any evaluation of the effectiveness of the
internal control over financial reporting to future periods are subject to the risk
that the controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In
our opinion, management’s assessment that the Company maintained effective
internal control over financial reporting as of December 31, 2004, is fairly stated,
in all material respects, based on the criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2004,
based on the criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We
have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements as of and
for the year ended December 31, 2004 of the Company and our report dated March 14,
2005 expressed an unqualified opinion on those financial statements and included an
explanatory paragraph regarding the termination of the Collaborative Agreement
between Aventis and the Company.
/s/ DELOITTE
& TOUCHE LLP
Parsippany, New
Jersey
March 14, 2005
60
| Item 9B. | Other Information |
None.
PART III
| 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, 2005 pursuant to
Regulation 14A of the General Rules and Regulations under the Securities Exchange
Act of 1934, 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, 2005 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, 2005 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, 2005 pursuant to
Regulation 14A.
| Item 14. | Principal Accounting Fees and Services |
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, 2005 pursuant to
Regulation 14A.
61
PART IV
| Item 15. | Exhibits and Financial Statement Schedules. |
| Exhibit Number |
Description of Document |
| 3.1.a | Restated
Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3(i).1
to the Company’s Annual Report on Form 10-K for the year ended December 31, 1995,
Commission File No. 0-19635) |
| 3.1.b | Certificate
of Designations of Series D Convertible Preferred Stock of the Company (incorporated
by reference to Exhibit 3(i) to the Company’s Current Report on Form 8-K filed
on February 28, 1997, Commission File No. 0-19635) |
| 3.1.c | Certificate
of Amendment of Restated Certificate of Incorporation of the Company (incorporated
by reference to Exhibit 3(i).3 to the Company’s Annual Report on Form 10-K for
the year ended December 31, 1999, Commission File No. 0-19635) |
| 3.1.d | Amended
Certificate of Designations of Series D Convertible Preferred Stock of the Company
(incorporated by reference to Exhibit 3(i).4 to the Company’s Annual Report on
Form 10-K for the year ended December 31, 1999, Commission File No. 0-19635) |
| 3.1.e | Certificate
of Increase of Series D Convertible Preferred Stock of the Company (incorporated by
reference to Exhibit 3(i).5 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 1999, Commission File No. 0-19635) |
| 3.1.f | Certificate
of Amendment of Restated Certificate of Incorporation of the Company (incorporated
by reference to Exhibit 3(i).4 to the Company’s Annual Report on Form 10-K for
the year ended December 31, 1998, Commission File No. 0-19635) |
| 3.1.g | Certificate
of Amendment of Restated Certificate of Incorporation of the Company (incorporated
by reference to Exhibit 3(i).3 to the Company’s Annual Report on Form 10-K for
the year ended December 31, 1998, Commission File No. 0-19635) |
| 3.1.h | Certificate
of Amendment of Restated Certificate of Incorporation of the Company (incorporated
by reference to Exhibit 3(i).8 to the Company’s Annual Report on Form 10-K for
the year ended December 31, 1999, Commission File No. 0-19635) |
| 3.1.i | Certificate
of Amendment of Restated Certificate of Incorporation of the Company (incorporated
by reference to Exhibit 3.1.i to the Company’s Registration Statement on Form S-1,
Commission File No. 333-110238) |
| 3.1.j | Certificate
of Amendment of Restated Certificate of Incorporation of the Company (incorporated
by reference to Exhibit 3.1.j to the Company’s Registration Statement on Form S-1,
Commission File No. 333-110238) |
| 3.1.k | Certificate
of Amendment of Restated Certificate of Incorporation of the Company (incorporated
by reference to Exhibit 3.1.k to the Company’s Quarterly Report on Form 10-Q for
the quarter ended June 30, 2004, Commission File No. 0-19635 |
| 3.2 | Amended
and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004,
Commission File No. 0-19635) |
| 4.1 | Specimen
Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s
Registration Statement on Form S-1, Commission File No. 333-110238) |
| 10.1 | Amended
and Restated 1991 Stock Plan of Genta Incorporated (incorporated by reference to
Exhibit 10.1 to the Company’s Registration Statement on Form S-8, Reg. No.
333-101022) |
| 10.2 | Non-Employee
Directors’ 1998 Stock Option Plan, as amended and restated (incorporated by
reference to Exhibit 99.B to the Company’s Definitive Proxy Statement on
Schedule 14A filed on April 30, 2004, Commission File No. 0-19635) |
| 10.3 | 1998
Stock Incentive Plan, as amended and restated, effective March 19, 2004
(incorporated by reference to Exhibit 99.A to the Company’s Definitive Proxy
Statement on Schedule 14A filed on April 30, 2004, Commission File No. 0-19635) |
| 10.4 | Form
of Indemnification Agreement entered into between the Company and its directors and
officers (incorporated by reference to Exhibit 10.7 to the Company’s Registration
Statement on Form S-1, Commission File No. 0-19635) |
62
| Exhibit Number |
Description of Document |
| 10.5* | Development,
License and Supply Agreement dated February 2, 1989 between the Company and Gen-Probe
Incorporated (incorporated by reference to Exhibit 10.10 to the Company’s
Registration Statement on Form S-1, Commission File No. 0-19635) |
| 10.6 | Asset
Purchase Agreement, dated as of March 19, 1999, among JBL Acquisition Corp., JBL
Scientific Incorporated and the Company (incorporated by reference to Exhibit 10.2 to
the Company’s Quarterly Report filed on Form 10-Q for the quarter ended March 31,
1999, Commission File No. 0-19635) |
| 10.7 | Warrant
Agreement, dated as of December 23, 1999, among the Company, ChaseMellon Shareholder
Services, L.L.C., as warrant agent, and Paramount Capital, Inc. (incorporated by
reference to Exhibit 10.67 to the Company’s Annual Report on Form 10-K for the year
ended December 31, 1999, Commission File No. 0-19635) |
| 10.8 | Employment
Letter Agreement, dated as of October 28, 1999, from the Company to Raymond P.
Warrell, Jr., M.D. (incorporated by reference to Exhibit 10.70 to the Company’s
Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No.
0-19635) |
| 10.9 | Stock
Option Agreement, dated as of October 28, 1999, between the Company and Raymond P.
Warrell, Jr., M.D. (incorporated by reference to Exhibit 10.71 to the Company’s
Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No.
0-19635) |
| 10.10 | Letter
Agreement, dated March 4, 1999, from SkyePharma Plc to the Company (incorporated by
reference to Exhibit 10.72 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 1999, Commission File No. 0-19635) |
| 10.11 | 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. (incorporated by reference to Exhibit 10.73 to the Company’s
Annual Report on Form 10-K for the year ended December 31, 2001, Commission File No.
0-19635) |
| 10.12 | Employment
Letter Agreement, dated as of March 27, 2001, from the Company to Loretta M. Itri, M.D.
(incorporated by reference to Exhibit 10.74 to the Company’s Annual Report on Form
10-K for the year ended December 31, 2001, Commission File No. 0-19635) |
| 10.13 | Agreement
of Lease dated June 28, 2000 between The Connell Company and the Company (incorporated
by reference to Exhibit 10.76 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2001, Commission File No. 0-19635) |
| 10.13A | Amendment
of Lease, dated June 19, 2002 between The Connell Company and the Company (incorporated
by reference to Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q for
the quarter ended June 30, 2002, Commission File No. 0-19635) |
| 10.14 | Agreement
of Sublease dated August 13, 2001 between Expanets, Inc. and the Company (incorporated
by reference to Exhibit 10.77 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2001, Commission File No. 0-19635) |
| 10.15* | U.S.
Commercialization Agreement dated April 26, 2002, by and between Genta
Incorporated and Aventis Pharmaceuticals Inc. |
| 10.15A* | Amendment
No. 1 dated March 14, 2003 to the U.S. Commercialization Agreement between Genta
Incorporated and Aventis Pharmaceuticals Inc. (incorporated by reference to Exhibit
10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March
31, 2003). |
| 10.16* | Ex-U.S.
Commercialization Agreement, dated April 26, 2002, by and between Genta Incorporated and
Garliston Limited |
| 10.17* | Global
Supply Agreement, dated April 26, 2002, by and among Genta Incorporated, Aventis
Pharmaceuticals Inc. and Garliston Limited (incorporated by reference to Exhibit 10.3
to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002,
Commission File No. 0-19635) |
| 10.18* | Securities
Purchase Agreement, dated April 26, 2002, by and between Genta Incorporated and
Garliston Limited (incorporated by reference to Exhibit 10.4 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, Commission File No.
0-19635) |
63
| Exhibit Number |
Description of Document |
| 10.19 | Standstill
and Voting Agreement, dated April 26, 2002, by and between Genta Incorporated and
Garliston Limited (incorporated by reference to Exhibit 10.5 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, Commission File No.
0-19635) |
| 10.20 | Registration
Rights Agreement, dated April 26, 2002, by and between Genta Incorporated and
Garliston Limited (incorporated by reference to Exhibit 10.6 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, Commission File No.
0-19635) |
| 10.21 | Convertible
Note Purchase Agreement, dated April 26, 2002, by and between Genta Incorporated and
Garliston Limited (incorporated by reference to Exhibit 10.7 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, Commission File No.
0-19635) |
| 10.22* | 5.63%
Convertible Promissory Note, due April 26, 2009 (incorporated by reference to Exhibit
10.8 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30,
2002, Commission File No. 0-19635) |
| 10.23* | Subordination
Agreement, dated April 26, 2002, by and between Genta Incorporated and
Garliston Limited (incorporated by reference to Exhibit 10.9 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, Commission File No.
0-19635) |
| 10.24* | Manufacture
and Supply Agreement, dated December 20, 2002, between Genta Incorporated and Avecia
Biotechnology Inc. (incorporated by reference to Exhibit 10.88 to the Company’s
Annual Report on Form 10-K for the year ended December 31, 2002, Commission File No.
0-19635) |
| 10.25 | Employment
Agreement, dated as of December 1, 2002, between the Company and Raymond P.
Warrell, Jr., M.D. (incorporated by reference to Exhibit 10.89 to the Company’s
Annual Report on Form 10-K/A for the year ended December 31, 2001, Commission File No.
0-19635) |
| 10.26 | Employment
Agreement, dated as of August 5, 2003, between the Company and Loretta M. Itri, M.D.
(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2003, Commission File No. 0-19635) |
| 10.27* | License
Agreement dated August 1, 1991, between Genta Incorporated and the Trustees of
the University of Pennsylvania (incorporated by reference to Exhibit 99.1 to the
Company’s Current Report on Form 8-K filed on October 28, 2003, Commission File
No. 0-19635) |
| 10.27A* | Amendment
to License Agreement, dated December 19, 2000, between Genta Incorporated and the
Trustees of the University of Pennsylvania (incorporated by reference to Exhibit 99.2
to the Company’s Current Report on Form 8-K filed on October 28, 2003, Commission
File No. 0-19635) |
| 10.27AA* | Second
Amendment to License Agreement, dated October 22, 2003, between Genta Incorporated and
the Trustees of the University of Pennsylvania (incorporated by reference to Exhibit
99.3 to the Company’s Current Report on Form 8-K filed on October 28, 2003,
Commission File No. 0-19635) |
| 10.28* | Settlement
Agreement and Release, dated October 22, 2003, between Genta Incorporated and the
Trustees of the University of Pennsylvania (incorporated by reference to Exhibit 99.4
to the Company’s Current Report on Form 8-K filed on October 28, 2003, Commission
File No. 0-19635) |
| 21 | Subsidiaries
of the Registrant |
| 23.1 | Consent
of Deloitte & Touche LLP |
| 31.1 | Certification
by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 31.2 | Certification
by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 32.1 | 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 |
| 32.2 | 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 been granted confidential treatment of certain portions of this exhibit. |
64
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 14th day of March 2005.
| GENTA INCORPORATED | |
| |
|
| /s/ RAYMOND P. WARRELL, JR., M.D. | |
| Raymond P. Warrell, Jr., M.D. | |
| Chairman and Chief 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 and Chief Executive Officer | March 14, 2005 |
| Raymond P. Warrell, Jr., M.D. | ||
| /s/ WILLIAM P. KEANE | Vice President,
Chief Financial Officer and Corporate Secretary (Principal Accounting Officer) |
March 14, 2005 |
| William P. Keane | ||
| /s/ JEROME E. GROOPMAN, M.D. | Director | March 14, 2005 |
| Jerome E. Groopman, M.D. | ||
| /s/ BETSY MCCAUGHEY | Director | March 14, 2005 |
| Betsy McCaughey, Ph.D. | ||
| /s/ PETER TATTLE | Director | March 14, 2005 |
| Peter T. Tattle | ||
| /s/ DANIEL D. VON HOFF, M.D. | Director | March 14, 2005 |
| Daniel D. Von Hoff, M.D. | ||
| /s/ HARLAN J. WAKOFF | Director | March 14, 2005 |
| Harlan J. Wakoff | ||
| /s/ DOUGLAS G. WATSON | Director | March 14, 2005 |
| Douglas G. Watson | ||
| /s/ MICHAEL S. WEISS | Director | March 14, 2004 |
| Michael S. Weiss |
65
| Exhibit Number |
Description of Document |
Sequentially Numbered Pages |
| 3.1.a | Restated
Certificate of Incorporation of the Company (incorporated by reference to Exhibit
3(i).1 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 1995, Commission File No. 0-19635) |
| 3.1.b | Certificate
of Designations of Series D Convertible Preferred Stock of the Company
(incorporated by reference to Exhibit 3(i) to the Company’s Current Report on
Form 8-K filed on February 28, 1997, Commission File No. 0-19635) |
| 3.1.c | Certificate
of Amendment of Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3(i).3 to the Company’s Annual Report on
Form 10-K for the year ended December 31, 1999, Commission File No. 0-19635) |
| 3.1.d | Amended
Certificate of Designations of Series D Convertible Preferred Stock of the Company
(incorporated by reference to Exhibit 3(i).4 to the Company’s Annual Report on
Form 10-K for the year ended December 31, 1999, Commission File No. 0-19635) |
| 3.1.e | Certificate
of Increase of Series D Convertible Preferred Stock of the Company
(incorporated by reference to Exhibit 3(i).5 to the Company’s Annual Report on
Form 10-K for the year ended December 31, 1999, Commission File No. 0-19635) |
| 3.1.f | Certificate
of Amendment of Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3(i).4 to the Company’s Annual Report on
Form 10-K for the year ended December 31, 1998, Commission File No. 0-19635) |
| 3.1.g | Certificate
of Amendment of Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3(i).3 to the Company’s Annual Report on
Form 10-K for the year ended December 31, 1998, Commission File No. 0-19635) |
| 3.1.h | Certificate
of Amendment of Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3(i).8 to the Company’s Annual Report on
Form 10-K for the year ended December 31, 1999, Commission File No. 0-19635) |
| 3.1.i | Certificate
of Amendment of Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1.i to the Company’s Registration
Statement on Form S-1, Commission File No. 333-110238) |
| 3.1.j | Certificate
of Amendment of Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1.j to the Company’s Registration
Statement on Form S-1, Commission File No. 333-110238) |
| 3.1.k | Certificate
of Amendment of Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1.k to the Company’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2004, Commission File No. 0-19635 |
| 3.2 | Amended
and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004,
Commission File No. 0-19635) |
| 4.1 | Specimen
Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s
Registration Statement on Form S-1, Commission File No. 333-110238) |
| 10.1 | Amended
and Restated 1991 Stock Plan of Genta Incorporated (incorporated by reference to
Exhibit 10.1 to the Company’s Registration Statement on Form S-8, Reg. No.
333-101022) |
| 10.2 | Non-Employee
Directors’ 1998 Stock Option Plan, as amended and restated (incorporated by
reference to Exhibit 99.B to the Company’s Definitive Proxy Statement on Schedule
14A filed on April 30, 2004, Commission File No. 0-19635) |
66
| Exhibit Number |
Description of Document |
Sequentially Numbered Pages |
| 10.3 | 1998
Stock Incentive Plan, as amended and restated, effective March 19, 2004
(incorporated by reference to Exhibit 99.A to the Company’s Definitive
Proxy Statement on Schedule 14A filed on April 30, 2004, Commission File No. 0-19635) |
| 10.4 | Form
of Indemnification Agreement entered into between the Company and its directors and
officers (incorporated by reference to Exhibit 10.7 to the Company’s
Registration Statement on Form S-1, Commission File No. 0-19635) |
| 10.5* | Development,
License and Supply Agreement dated February 2, 1989 between the Company and Gen-Probe
Incorporated (incorporated by reference to Exhibit 10.10 to the Company’s
Registration Statement on Form S-1, Commission File No. 0-19635) |
| 10.6 | Asset
Purchase Agreement, dated as of March 19, 1999, among JBL Acquisition Corp., JBL
Scientific Incorporated and the Company (incorporated by reference to Exhibit 10.2 to
the Company’s Quarterly Report filed on Form 10-Q for the quarter ended March
31, 1999, Commission File No. 0-19635) |
| 10.7 | Warrant
Agreement, dated as of December 23, 1999, among the Company, ChaseMellon
Shareholder Services, L.L.C., as warrant agent, and Paramount Capital, Inc.
(incorporated by reference to Exhibit 10.67 to the Company’s Annual Report on
Form 10-K for the year ended December 31, 1999, Commission File No. 0-19635) |
| 10.8 | Employment
Letter Agreement, dated as of October 28, 1999, from the Company to Raymond P.
Warrell, Jr., M.D. (incorporated by reference to Exhibit 10.70 to the Company’s
Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No.
0-19635) |
| 10.9 | Stock
Option Agreement, dated as of October 28, 1999, between the Company and Raymond P.
Warrell, Jr., M.D. (incorporated by reference to Exhibit 10.71 to the Company’s
Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No.
0-19635) |
| 10.10 | Letter
Agreement, dated March 4, 1999, from SkyePharma Plc to the Company (incorporated by
reference to Exhibit 10.72 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 1999, Commission File No. 0-19635) |
| 10.11 | 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. (incorporated by reference to Exhibit 10.73 to the Company’s
Annual Report on Form 10-K for the year ended December 31, 2001, Commission File No.
0-19635) |
| 10.12 | Employment
Letter Agreement, dated as of March 27, 2001, from the Company to Loretta M. Itri,
M.D. (incorporated by reference to Exhibit 10.74 to the Company’s Annual Report on
Form 10-K for the year ended December 31, 2001, Commission File No. 0-19635) |
| 10.13 | Agreement
of Lease dated June 28, 2000 between The Connell Company and the Company
(incorporated by reference to Exhibit 10.76 to the Company’s Annual Report on
Form 10-K for the year ended December 31, 2001, Commission File No. 0-19635) |
67
| Exhibit Number |
Description of Document |
Sequentially Numbered Pages |
| 10.13A | Amendment
of Lease, dated June 19, 2002 between The Connell Company and the Company
(incorporated by reference to Exhibit 10.10 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2002, Commission File No. 0-19635) |
| 10.14 | Agreement
of Sublease dated August 13, 2001 between Expanets, Inc. and the Company
(incorporated by reference to Exhibit 10.77 to the Company’s Annual Report on
Form 10-K for the year ended December 31, 2001, Commission File No. 0-19635) |
| 10.15* | U.S.
Commercialization Agreement dated April 26, 2002, by and between Genta Incorporated and
Aventis Pharmaceuticals Inc. |
| 10.15A* | Amendment
No. 1 dated March 14, 2003 to the U.S. Commercialization Agreement between Genta
Incorporated and Aventis Pharmaceuticals Inc. (incorporated by reference to Exhibit
10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March
31, 2003). |
| 10.16* | Ex-U.S.
Commercialization Agreement, dated April 26, 2002, by and between Genta
Incorporated and Garliston Limited (incorporated by reference to Exhibit 10.2 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended June 30,
2002, Commission File No. 0-19635) |
| 10.17* | Global
Supply Agreement, dated April 26, 2002, by and among Genta Incorporated, Aventis
Pharmaceuticals Inc. and Garliston Limited (incorporated by reference to Exhibit 10.3
to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30,
2002, Commission File No. 0-19635) |
| 10.18* | Securities
Purchase Agreement, dated April 26, 2002, by and between Genta Incorporated and
Garliston Limited (incorporated by reference to Exhibit 10.4 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, Commission File
No. 0-19635) |
| 10.19 | Standstill
and Voting Agreement, dated April 26, 2002, by and between Genta Incorporated and
Garliston Limited (incorporated by reference to Exhibit 10.5 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, Commission File
No. 0-19635) |
| 10.20 | Registration
Rights Agreement, dated April 26, 2002, by and between Genta Incorporated and
Garliston Limited (incorporated by reference to Exhibit 10.6 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, Commission File
No. 0-19635) |
| 10.21 | Convertible
Note Purchase Agreement, dated April 26, 2002, by and between Genta
Incorporated and Garliston Limited (incorporated by reference to Exhibit 10.7 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended June 30,
2002, Commission File No. 0-19635) |
| 10.22* | 5.63%
Convertible Promissory Note, due April 26, 2009 (incorporated by reference to
Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002, Commission File No. 0-19635) |
| 10.23* | Subordination
Agreement, dated April 26, 2002, by and between Genta Incorporated and Garliston
Limited (incorporated by reference to Exhibit 10.9 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, Commission File
No. 0-19635) |
| 10.24* | Manufacture
and Supply Agreement, dated December 20, 2002, between Genta Incorporated and Avecia
Biotechnology Inc. (incorporated by reference to Exhibit 10.88 to the Company’s
Annual Report on Form 10-K for the year ended December 31, 2002, Commission File No.
0-19635) |
| 10.25 | Employment
Agreement, dated as of December 1, 2002, between the Company and Raymond P. Warrell,
Jr., M.D. (incorporated by reference to Exhibit 10.89 to the Company’s Annual
Report on Form 10-K/A for the year ended December 31, 2001, Commission File No.
0-19635) |
68
| Exhibit Number |
Description of Document |
Sequentially Numbered Pages |
| 10.26 | Employment
Agreement, dated as of August 5, 2003, between the Company and Loretta M. Itri,
M.D. (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2003, Commission File No. 0-19635) |
| 10.27* | License
Agreement dated August 1, 1991, between Genta Incorporated and the Trustees of the
University of Pennsylvania (incorporated by reference to Exhibit 99.1 to the Company’s
Current Report on Form 8-K filed on October 28, 2003, Commission File No. 0-19635) |
| 10.27A* | Amendment
to License Agreement, dated December 19, 2000, between Genta Incorporated and the
Trustees of the University of Pennsylvania (incorporated by reference to Exhibit 99.2
to the Company’s Current Report on Form 8-K filed on October 28, 2003,
Commission File No. 0-19635) |
| 10.27AA* | Second
Amendment to License Agreement, dated October 22, 2003, between Genta
Incorporated and the Trustees of the University of Pennsylvania (incorporated by
reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed
on October 28, 2003, Commission File No. 0-19635) |
| 10.28 | Settlement
Agreement and Release, dated October 22, 2003, between Genta Incorporated and the
Trustees of the University of Pennsylvania (incorporated by reference to Exhibit 99.4
to the Company’s Current Report on Form 8-K filed on October 28, 2003,
Commission File No. 0-19635) |
| 21 | Subsidiaries
of the Registrant |
| 23.1 | Consent
of Deloitte & Touche LLP |
| 31.1 | Certification
by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 31.2 | Certification
by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 32.1 | 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 |
| 32.2 | 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 |
69