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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITIONAL REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
[ ] 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 [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The approximate aggregate market value of the voting common equity held by
non-affiliates of the registrant was $403,346,448 as of March 8, 2002. For
purposes of determining this number, 25,209,153 shares of common stock held by
affiliates are excluded. For purposes of making this calculation, the
registrant 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 8, 2002, the registrant had 66,565,781 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, 2002 pursuant to Regulation 14A are incorporated
by reference in Items 10 through 13 of Part III of this Annual Report on Form
10-K.
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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's ability to develop, manufacture and sell its products;
- the potential efficacy of the Company's products;
- the commencement and completion of pre-clinical and clinical trials;
- the Company's ability to obtain necessary regulatory approvals;
- the Company's contractual collaborative arrangements;
- the adequacy of the Company's capital resources;
- the ability to obtain sufficient financing to maintain the Company's
planned operations;
- the possibility and effect of patent infringement claims;
- the impact of competitive products and market conditions;
- the other risks detailed in the Certain Trends and Uncertainties
section of Management's Discussion and Analysis of Financial
Condition and Results of Operations in this Annual Report on Form
10-K; and
- the other risks described under Certain Risks and Uncertainties
Related to the Company's Business.
The Company does not undertake to update any forward-looking statements.
2
PART I
ITEM 1. BUSINESS
A. OVERVIEW
Genta Incorporated ("Genta" or the "Company") was incorporated in Delaware
on February 4, 1988. Genta is a biopharmaceutical company that is dedicated to
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,
including the Company's gallium products and androgenics compounds.
The Company's lead investigational antisense drug is Genasense(TM)
(oblimersen), a molecule designed to block the production of a protein known as
Bcl-2, which the Company believes contributes to the inherent resistance of
cancer cells to being killed by current types of anticancer treatment, such as
chemotherapy, radiation, or monoclonal antibodies. While Genasense(TM) may have
some anticancer activity when used by itself, the Company is developing the drug
solely as a means of amplifying the effects of other treatments. All current
Company research programs seek to increase the effectiveness of cancer
chemotherapy by pre-treating patients with Genasense(TM).
The U.S. Food and Drug Administration ("FDA") has granted several
designations to Genasense(TM) that may in the future serve to expedite its
regulatory review, assuming the clinical trials have yielded a positive result.
These designations include "Fast Track" status in melanoma and multiple myeloma,
and "Orphan Drug" designation in myeloma, melanoma, and chronic lymphocytic
leukemia. The Company has applied for similar designation from regulatory
agencies in Europe. Genasense(TM) is undergoing the last stage of clinical
testing, which is called "Phase 3". Randomized Phase 3 trials are currently
being conducted in multinational trials that encompass patients with malignant
melanoma, multiple myeloma, and chromic lymphocytic leukemia. The Company also
has other randomized and non-randomized clinical trials involving patients with
other types of cancer.
The Company is developing two small molecule drugs containing gallium: an
intravenous drug identified as gallium nitrate (Ganite(R)) and an oral
formulation of a gallium-containing compound. Ganite(R) had previously received
marketing approval in the U.S. and Canada for treatment of patients with
cancer-related hypercalcemia, a life-threatening condition caused by excessive
buildup of calcium in the bloodstream. Based on previously published data, the
Company believes that Ganite(R) may be active as a treatment for patients with
certain types of cancer, particularly non-Hodgkin's lymphoma. Toward that end,
the Company has filed an Investigational New Drug (IND) exemption with the FDA
that will enable the Company to initiate a new clinical trial of Ganite(R) for
treatment of myelosuppressed patients with relapsed non-Hodgkin's lymphoma. The
Company is also developing an oral formulation of a gallium-containing compound
that is intended to permit the use of lower doses to be administered over
extended periods. The Company believes this new drug may be useful for patients
who have accelerated loss of bone, such as persons with bone metastases (i.e.,
cancer that has spread into bone) and Paget's disease.
The Company is also developing androgenics compounds for the treatment of
the hormone-sensitive stage of prostate cancer. A lead compound (G20,000) has
been identified and is currently undergoing additional testing to improve its
formulation for oral absorption. If these tests are successful, the Company
intends to advance this drug into animal toxicology testing, which would be the
last step prior to testing the drug in patients.
The Company is also developing decoy aptamer technology, which is
designed to bind proteins known as transcription factors that selectively can
turn genes either on or off. This type of control might be used to regulate
genes that are critically involved in cancer progression. A lead target, known
as the cyclic adenosine monophosphate response element-binding protein (CRE-BP),
has been identified and a decoy has been created. The CRE-BP decoy is currently
undergoing preclinical testing.
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B. SUMMARY OF BUSINESS AND RESEARCH AND DEVELOPMENT PROGRAMS
ANTISENSE TECHNOLOGY
Antisense is a relatively new approach to drug development involving genes
that are comprised of DNA which carry the genetic code for all cells. However,
most of a cell's functions, including whether the cell lives or dies, are
carried out by proteins. In both healthy and cancer cells, DNA consist of
nucleotides that are arranged in a specific sequence that encodes the production
of a specific protein. In order for the DNA code to be translated into the
production of protein, an intermediate step is required. In this step, DNA is
transcribed into RNA (the so called "message", or mRNA). The sequence of mRNA
nucleotides that encode protein are oriented in direction (known as a "sense").
Antisense drugs are short sequences of chemically modified DNA nucleotides
that are called "oligonucleotides" (oligos). The oligos are engineered in a
sequence that is exactly opposite (hence "anti") to the "sense" coding sequence
of mRNA. Because antisense drugs need to attack only short regions of the mRNA
(rather than the whole message itself), antisense drugs contain far fewer
nucleotides than the whole gene and therefore should bind only to the matching
sequence of nucleotides in the mRNA. As a result, antisense drugs can be used to
attack production of a single, disease-causing protein.
Cancer is associated with the over or under-production of many types of
proteins. The Company believes that the ability to selectively halt the
production of certain proteins may make the treatment of certain diseases more
effective. In an effort to make existing cancer therapy more effective, Genta is
developing Genasense(TM) to target the production of Bcl-2, a protein that the
Company believes is central to the process of programmed cell death (known as
"apoptosis").
The Company has devoted significant resources towards the development of
"second generation" antisense oligos that contain a phosphorothioate "backbone."
However, the Company also has patents and technology covering later "third
generation" technologies that involve mixed phosphorothioate and
methylphosphonate backbones that may further enhance the molecule's ability to
bind to the intended target. In preclinical studies, these "mixed backbone"
oligos have effectively down-regulated targeted mRNA sequences inside cells.
When injected intravenously into certain animals, these third generation oligos
have also demonstrated substantially greater stability in the circulatory system
and urinary excretion relative to earlier compounds. This higher degree of
stability suggests that these third generation oligos may ultimately be more
effective than the Company's second generation oligos.
APOPTOSIS
The programmed death of cells, or apoptosis, is essential for proper
development of embryos and of many of the body's systems, including the central
nervous system, immune regulation and others. Apoptosis is necessary to
accommodate the billions of new cells produced daily and to eliminate aged or
damaged cells. Abnormal regulation of the apoptosis process can result in
disease. For instance, cancer, autoimmune disorders, and many viral infections
are associated with inhibited apoptosis (the programmed death of cells is
occurring too slowly). Conversely, AIDS and certain neurodegenerative diseases
are associated with increased apoptosis (the programmed death of cells is
occurring too rapidly). This process of programmed cell death is genetically
regulated, the Company believes primarily by the Bcl-2 protein family.
BCL-2: ANTI-APOPTOTIC MECHANISMS
The Bcl-2 protein inhibits the programmed death of cancer cells and allows
those cells to survive. Many cancer cells have an excess of this protein, making
them resistant to most current types of anticancer treatment (including
chemotherapy, radiation and monoclonal antibodies). Overcoming resistance to
chemotherapy poses a major challenge for cancer treatment. Antisense technology
has been developed to prevent resistance to cancer therapy by blocking the
production of Bcl-2, thereby dramatically increasing the sensitivity of cancer
cells to chemotherapy, radiation, and immunotherapy.
Normally, when a cancer cell is exposed to treatment (i.e. with
chemotherapy, radiation or immunotherapy) a "death signal" is sent to the
mitochondrion. The mitochondrion then releases a substance known as cytochrome C
that
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activates enzymes (called caspases). These enzymes then cause widespread
fragmentation of the cellular proteins, which ultimately causes cell death.
Bcl-2 is normally found in the mitochondrial membrane where it regulates
the release of cytochrome C. High levels of Bcl-2 are associated with most types
of human cancer, including the major hematologic cancers (e.g., lymphomas,
myeloma, and leukemia) and solid tumors (e.g., cancers of the lung, colon,
breast, and prostate). In these diseases, Bcl-2 blocks the release of cytochrome
C which would ordinarily be triggered by cancer therapy. Bcl-2 also appears to
be a major contributor to both the inherent and acquired resistance to
anticancer treatments.
Observations that support these conclusions include:
- Chemotherapy and radiotherapy sensitive cancerous cells can be made
resistant to apoptosis-inducing treatments by inserting the Bcl-2
protein into those cells.
- Higher levels of Bcl-2 correlate with an inferior prognosis and/or
poor response to therapy in many diseases.
- Higher levels of Bcl-2 coincide with the shift from androgen-dependent
to androgen-independent tumor growth in prostate cancer.
- The capability of cells to cause tumors can be substantially increased
by inserting the Bcl-2 protein into those cells.
GENASENSE(TM) (OBLIMERSEN; G3139; BCL-2 ANTISENSE OLIGONUCLEOTIDE)
Genasense(TM) blocks production of Bcl-2, thereby potentially restoring the
integrity of the apoptotic process and enabling the cancer cell to be killed
with current anticancer therapy. Genasense(TM) is comprised of a phosphorothiate
(i.e., second generation) backbone linking 18 modified DNA bases (i.e., an
"18-mer"). This oligo targets the first six codons of Bcl-2 mRNA to form a
DNA/RNA duplex. A certain enzyme recognizes the DNA/RNA duplex as foreign and
then cleaves the Bcl-2 mRNA strand, thereby destroying the ability of the
message to be transplanted into Bcl-2 protein. Due to the natural degradation of
proteins, halting the production of the protein eventually reduces its
intracellular levels, thus preventing the protein from being able to function.
The fragments of Bcl-2 mRNA are themselves degraded by enzymes subsequently
destroyed by ribonucleases.
OVERVIEW OF PRECLINICAL AND CLINICAL STUDIES OF GENASENSE(TM)
GENASENSE(TM) PRECLINICAL STUDIES
In order to affect DNA activity (and thus cell activity), Genasense(TM)
must be incorporated into the cell. After intravenous or subcutaneous injection,
Genasense(TM) distributes rapidly to highly perfused organs, especially lung and
bone marrow. Oligonucleotides are generally excreted unchanged, predominantly by
the kidney. Biodistribution studies of Genasense(TM) in vivo have demonstrated
high tissue:plasma ratios, particularly in kidney and liver but also significant
distribution to the bone marrow and spleen. In addition, in vitro and in vivo
studies showed both biologic and antitumor activity with sub-micromolar
concentrations (e.g., approximately 170 nanomolar).
A number of in vitro and in vivo studies have shown synergistic enhancement
of tumor cell killing when Bcl-2 antisense was used to reduce Bcl-2 protein
content in combination with standard antisense therapy (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 immunodeficient mice that were engrafted with xenografts of
human cancers and treated with Bcl-2 antisense followed by antitumor agents that
induce apoptosis. These studies include human lymphoma, melanoma, breast cancer,
and prostate cancers treated with Genasense(TM) in combination with
cyclophosphamide, dacarbazine, docetaxel, and paclitaxel, respectively.
5
GENASENSE(TM) CLINICAL STUDIES
GenasenseTM has been in clinical trials since 1995 in both the United
States and Europe. These studies have been conducted in patients with a wide
variety of tumor types, including non-Hodgkin's lymphoma, malignant melanoma,
several types of leukemia, and cancers of the prostate, colon, lung, and breast.
In 1999, the Company executed a Cooperative Research and Development Agreement
with the U.S. National Cancer Institute (NCI). In 2001, this agreement was
extended until 2003. In addition to the Genta-sponsored trials, NCI has
sponsored additional clinical trials in a number of diseases. In aggregate,
results of clinical trials performed to date suggest that GenasenseTM can be
safely administered to patients with cancer, and that such treatment may reduce
the level of Bcl-2 protein in cancer cells.
GENASENSE(TM) PHASE 3 RANDOMIZED CLINICAL TRIALS
In 2000 and 2001, the Company initiated a series of randomized clinical
trials that employed GenasenseTM in combination with cytotoxic chemotherapy.
These trials are all similarly designed and each employs Genasense(TM) in an
effort to improve the outcome achieved by the partner chemotherapy agents(s)
alone. The studies are comprised of the following:
- a trial in patients with advanced malignant melanoma treated with
dacarbazine;
- a trial in patients with multiple myeloma treated with high-dose
dexamethasone;
- a trial in patients with chronic lymphocytic leukemia treated with
fludarabine and cyclophosphamide; and
- a trial in patients with advanced non-small cell lung cancer treated
with docetaxel.
The melanoma trial is directed to patients who have not been previously
treated with chemotherapy. The primary end-point of the trial is to increase
overall survival of patients treated with Genasense TM plus dacarbazine compared
with patients treated with dacarbazine alone. A minimum of 270 patients are
intended to be enrolled in this study. The myeloma and CLL studies are similarly
designed. They are directed towards patients who have previously been treated
with chemotherapy and have developed progressive disease, and each is intended
to enroll a minimum of 200 patients. The lung cancer study is also directed
toward patients who have failed prior chemotherapy. A minimum of 75 patients are
currently projected to be enrolled in an "embedded Phase 2" stage of this trial.
If those data appear favorable, the study will be expanded for additional
enrollment into a Phase 3 stage trial.
NON-HODGKIN'S LYMPHOMA AND CHRONIC LYMPHOCYTIC LEUKEMIA: A Phase 1 study of
21 patients with B-cell non-Hodgkin's lymphoma (NHL) was conducted in the U.K.
using Genasense(TM) administered by continuous subcutaneous infusion. The
results of this study demonstrated that Genasense(TM) infusions could
down-regulate Bcl-2 protein within five days of reaching steady-state plasma
levels. In the study, thrombocytopenia, infusion site reactions, and fatigue
were felt to be dose limiting in two patients treated at a level of 5.3
mg/kg/day. However, the tolerance to treatment in this study may have been
closely linked to the prolonged (2-week) infusion schedule given by the
subcutaneous route. Other studies have safely escalated the Genasense(TM) doses
to 7 mg/kg/day when given intravenously in combination with cytotoxic
chemotherapy. Although the administered drug dose was quite low in most patients
(i.e., substantially below doses that are now known to be both safe and
optimally effective with respect to Bcl-2 down-regulation), several major
responses were observed. One patient with low-grade lymphoma who had progressive
disease in nodes and bone marrow after two prior regimens attained a complete
response using Genasense(TM) alone, which has been maintained for longer than
four years. These results were initially published in The Lancet in 1997 and
updated in 2000 in The Journal of Clinical Oncology.
More recently, the M.D. Anderson Cancer Center conducted a Phase 1 trial of
Genasense(TM) in patients with chronic lymphocytic leukemia (CLL). Similar to
the previous NHL study, this trial showed that CLL patients (like NHL patients)
exhibited disease-specific side effects to GenasenseTM, including exaggerated
fever, hypotension, and back pain. Together, these studies have indicated that
the appropriate initial dose for extended Phase 2 and Phase 3
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testing in these two diseases is 3.5 mg/kg/day. Data from the CLL study were
presented in 2001 at the annual meeting of the American Society of Hematology.
ACUTE LEUKEMIA: A Phase 1 study at Ohio State University evaluated a
constant intravenous (IV) infusion dose of Genasense(TM) with escalating doses
of fludarabine, cytosine arabinoside, and filgrastim in patients with acute
leukemia. Results showed that Genasense(TM) could be safely combined with these
agents in patients with relapsed leukemia. These data have been presented at
several national meetings, including the annual meeting of the American Society
of Hematology in 2001.
MALIGNANT MELANOMA: A Phase 1 clinical study of Genasense(TM) combined with
dacarbazine (DTIC) was conducted at the University of Vienna. Daily IV infusions
(or twice daily subcutaneous injections) of Genasense(TM) were given at doses
ranging from 1.7 to 12 mg/kg/day. Serial biopsies of cutaneous melanoma
metastases showed reduced Bcl-2 protein content (assayed by Western analysis) in
tumor cells by day five of treatment. Durable responses and prolonged (greater
than 1 year) progression-free survival were also observed in this study, even
though most patients had failed both immunotherapy and chemotherapy. Six of the
first 14 patients treated showed objective responses. The Genasense(TM)/DTIC
regimen was well tolerated up to the dose level of 7 mg/kg/day. Details of this
study were reported in The Lancet in 2000.
OTHER PHASE 1 STUDIES IN PATIENTS WITH ADVANCED CANCER: Thirty-five
patients (mostly with genitourinary cancer) were entered into a dose-escalation
trial using both a 14-day and 21-day intravenous infusion schedule of
Genasense(TM), either alone or in combination with paclitaxel. This study,
conducted at Memorial Sloan-Kettering Cancer Center, showed that fatigue and
fever were observed after two weeks at doses ranging from 4.1 to 7 mg/kg/day for
14 days. Similar reactions were observed on the 21-day infusion schedule.
Transient elevation of liver enzymes (i.e., serum transaminase) was observed at
the 7 mg/kg-dose level. These data have been published in Clinical Cancer
Research. Other dose-ranging combination studies of Genasense(TM) have been
conducted in patients receiving mitoxantrone or docetaxel for advanced prostate
cancer, docetaxel for breast cancer, multi-drug chemotherapy for non-Hodgkin's
lymphoma, and irinotecan for colorectal cancer. Results from most of these
clinical trials have been presented at national scientific meetings and
published in the proceedings of these conferences.
SUMMARY OF PHASE 1-2 STUDIES: In general, Genasense(TM) appears to be safe
when combined with full doses of standard cytotoxic chemotherapy using a daily
Genasense(TM) dose of 7 mg/kg/day for five to seven days. Exceptions to these
dosing regimen have been noted above in patients with NHL and CLL. Significant
thrombocytopenia, liver function abnormalities, or fatigue have not been dose
limiting in Phase 1-2 studies (including studies where the drug was combined
with myelosuppressive chemotherapy) that have used these shorter infusions (i.e.
five to seven days) at a dose of 7 mg/kg/day. Current data suggest that
reduction of Bcl-2 protein may be observed within the first three to five days.
Thus, current studies are generally using a five to seven-day schedule in
combination with chemotherapy, using Genasense(TM) administered at least three
days prior to the initiation of other therapy. As previously noted, the Company,
either alone or in conjunction with the U.S. National Cancer Institute, has
initiated a number of additional non-randomized Phase 2 trials of Genasense(TM)
in combination with chemotherapy in patients with a variety of cancer types.
GALLIUM PRODUCTS
Gallium nitrate was originally studied by the U.S. National Cancer
Institute as a new type of cancer chemotherapy. In the course of these studies,
gallium nitrate was shown to strongly inhibit bone resorption (breakdown).
Gallium nitrate underwent additional clinical testing and was approved by the
FDA in 1991 as a treatment for patients with cancer-related hypercalcemia that
has not responded to hydration. Hypercalcemia occurs due to rapid loss of bone
that releases large amounts of calcium into the bloodstream of patients, which
can be acutely lethal. Clinical testing has been performed in patients with
other, less extreme bone-losing conditions, including bone metastases (i.e.
cancer that has spread to bone), Paget's disease (an affliction of older
patients that causes pain and disability), and osteoporosis.
In April 2000, Genta acquired assets, rights, licenses to patents, and
technology relating to gallium-containing compounds for treatment of bone-losing
conditions, and to Ganite(R) (gallium nitrate injection), a liquid injectable
solution that had been approved for marketing by regulatory authorities in the
United States and Canada for treatment of cancer-related hypercalcemia. The
acquired assets included the ownership of an approved New Drug Application
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(NDA). The Company is currently engaged with outside contractors in the
remanufacture of the Ganite(R) product. If test data from these processes are
acceptable from a regulatory standpoint, the Company intends to file a
supplemental NDA that will update changes in chemistry and manufacturing for
approval to market Ganite(R) in the United States and Canada for the treatment
of hypercalcemia.
In December 2001, the Company filed a new Investigational New Drug
exemption request (IND) for Ganite (R) with the FDA for the treatment of
patients with relapsed non-Hodgkin's lymphoma. The Company intends to begin a
clinical trial of Ganite(R) as a treatment for patients with refractory
non-Hodgkin's lymphoma who have myelosuppression (bone marrow impairment that
leads to low blood counts). These patients often may need additional treatment
but cannot tolerate standard chemotherapy treatment because it will lead to
further myelosuppression. Since previously published clinical trials of
Ganite(R) showed that it does not cause significant myelosuppression, the
Company believes that this drug may address a significant unmet medical need.
The Company plans to begin a new clinical trial in non-Hodgkin's lymphoma in
2002, and if the clinical tests are positive, the Company plans to submit a
supplemental NDA (sNDA) to the FDA for this indication. Genta also intends to
submit an application to the FDA in order to designate gallium nitrate as an
"Orphan Drug."
The Company is also developing new formulations of gallium-containing
compounds designed to be taken orally. The Company believes that such
formulations will be useful for the treatment of patients who have chronic
bone-losing diseases, such as bone metastases, Paget's disease, and
osteoporosis. Such patients are commonly afflicted by bone pain and
susceptibility to fractures. If the formulation program is successful, the
Company would then intend to commence animal toxicology testing with a lead
compound.
DECOY APTAMERS
Decoy aptamers, like antisense technology, are also based on
oligonucleotide chemistry. However, while antisense technology uses
oligonucleotides to bind to and destroy mRNA, decoy aptamers employ
oligonucleotides to bind to specific proteins known as transcription factors.
Normally, transcription factors bind to specific portions of DNA known as
response elements, thereby regulating the functions of genes in a positive or
negative fashion (i.e., they can turn genes "on" or "off"). Decoy aptamers
technology creates artificial forms of response elements. When a cell is flooded
with an excess of aptamers, transcription factors are fooled into binding to the
decoys rather than the normal response elements found in genes. By selectively
inactivating the transcription factor, the function of the gene can be
regulated.
Genta licensed patents and technology relating to decoy aptamers from the
U.S. National Institute of Health in December 2000. In the Company's initial
pre-clinical program, it is targeting a transcription factor known as the cyclic
adenosine monophosphate response element binding protein (CRE-BP). Inactivation
of this protein in pre-clinical studies indicates selectivity for cancer cells
relative to normal cells. A lead drug from our decoy aptamer portfolio has been
identified.
ANDROGENICS TECHNOLOGIES
Genta is developing androgenics compounds to treat patients with prostate
cancer. These compounds have two principal actions: first, they block the
synthesis of androgen hormones, such as testosterone, that simulate the growth
of prostate cancer cells; second, they inactivate androgen receptors, proteins
that bind androgen hormones and thereby mediate their effects. These types of
activities suggest that these drugs could be useful therapy for patients with
early stage "hormone-sensitive" prostate cancer. In connection with the
acquisition of Androgenics Technologies, Inc. in 1999, the Company acquired
licensing rights to a series of Androgenics compounds. The Company has engaged
in a pre-clinical program of drug synthesis, formulation and anti-tumor testing
with these compounds. A lead compound, currently known as G20,000, has been
selected for further development. The Company currently anticipates commencing
animal toxicology tests using G20,000 in 2002. If results of these and other
pre-clinical tests are positive, Genta could then file an IND with the FDA to
begin clinical testing of G20,000.
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PATENTS AND PROPRIETARY TECHNOLOGY
The Company's policy is to protect its technology by, among other things,
filing patent applications with respect to technology considered important to
the development of its business. The Company also relies upon trade secrets,
unpatented know-how, continuing technological innovation and the pursuit of
licensing opportunities to develop and maintain its competitive position.
Genta has a portfolio of intellectual property rights, including a series
of applications, to aspects of oligonucleotide technology, which includes novel
compositions of matter, methods of large-scale synthesis, methods of controlling
gene expression and cationic lipid delivery systems. In addition, foreign
counterparts of certain applications have been filed or will be filed at the
appropriate time. In the United States, allowed patents generally would not
expire until 17 years after the date of allowance if filed before June 8, 1995
or, in other cases, 20 years from the date of application. Generally, it is the
Company's strategy to apply for patent protection in the United States, Canada,
Western Europe, Japan, Australia and New Zealand.
Since its incorporation, Genta has filed numerous patent applications in
the United States and overseas covering new compositions and improved methods to
use, synthesize and purify oligonucleotides, linker-arm technology, and
compositions for their delivery. There are currently 86 United States and
foreign patent applications pending.
Genta also gained access to certain rights from the National Institutes of
Health ("NIH") covering phosphorothioate oligonucleotides. This includes rights
to three United States issued patents, one issued European patent, one issued in
Japan and other corresponding foreign applications that are still pending. In
addition, under an agreement with the University of Pennsylvania, Genta has
acquired 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 United States patents were issued encompassing the Company's licensed
antisense oligonucleotide compounds targeted against the Bcl-2 mRNA and in vitro
uses of those compounds. These claims cover the Company's proprietary antisense
oligonucleotide molecules, which target the Bcl-2 mRNA including its lead
clinical candidate, Genasense(TM). Other related United States and corresponding
foreign patent applications are still pending.
In May 2000, the Company entered into a licensing arrangement with
Molecular Biosystems, Inc. ("MBI") for a broad portfolio of patents and
technology that relate to antisense for therapeutic and diagnostic applications.
The arrangement includes grants of both exclusive and non-exclusive rights from
MBI to Genta on a royalty-free basis in return for cash and shares of common
stock.
The patent positions of biopharmaceutical and biotechnology firms,
including Genta, can be uncertain and involve complex legal and factual
questions. Consequently, even though Genta is currently prosecuting its patent
applications with the United States and foreign patent offices, the Company does
not know whether any of its applications will result in the issuance of any
patents or if any issued patents will provide significant proprietary protection
or will be circumvented or invalidated. Since patent applications in the United
States are maintained in secrecy until patents issue, and since publication of
discoveries in the scientific or patent literature tend to lag behind actual
discoveries by several months, Genta cannot be certain that others have not
filed patent applications directed to inventions covered by its pending patent
applications or that it was the first to file patent applications for such
inventions.
Competitors or potential competitors may have filed applications for, or
have received patents and may obtain additional patents and proprietary rights
relating to, compounds or processes competitive with those of the Company.
Accordingly, there can be no assurance that the Company's patent applications
will result in issued patents or that, if issued, the patents will afford
protection against competitors with similar technology; nor can there be any
assurance that any patents issued to Genta will not be infringed or circumvented
by others; nor can there be any assurance that others will not obtain patents
that the Company would need to license or design around. There can be no
assurance that the Company will be able to obtain a license to technology that
it may require or that, if obtainable, such a license would be available on
reasonable terms.
Even if issued, patents can be challenged in the courts. Moreover, the
Company may become involved in interference proceedings declared by the United
States Patent and Trademark Office (or comparable foreign office or process) in
connection with one or more of its patents or patent applications to determine
priority of invention, which could result in substantial cost to the Company, as
well as a possible adverse decision as to priority of invention of the patent or
patent application involved.
The Company also relies upon unpatented trade secrets and no assurance can
be given that third parties will not independently develop substantially
equivalent proprietary information and techniques or gain access to the
Company's trade secrets or disclose such technologies to the public, or that the
Company can meaningfully maintain and protect unpatented trade secrets.
Genta requires its employees, consultants, outside scientific collaborators
and sponsored researchers and other advisors to execute a confidentiality
agreement upon the commencement of an employment or consulting relationship with
the Company. These agreements generally provide that all confidential
information developed or made known to an individual during the course of the
individual's relationship with Genta shall be kept confidential and shall not be
disclosed to third parties except in specific circumstances. In the case of
employees, the agreement generally provides that all inventions conceived by the
individual shall be assigned to, and made the exclusive property of, the
Company. There can be no assurance, however, that these agreements will provide
meaningful protection for the Company's trade secrets or adequate remedies in
the event of unauthorized use or disclosure of such information, or in the event
of an employee's refusal to assign any patents to the Company in spite of such
contractual obligation.
RESEARCH AND DEVELOPMENT
In addition to the Company's current focus in the four areas already
described and in an effort to focus its research and development efforts on
areas that provide the most significant commercial opportunities, the Company
continually evaluates its ongoing programs in light of the latest market
information and conditions, availability of third-party funding, technological
advances, and other factors. As a result of such evaluation, the Company's
product development plans have changed from time to time, and the Company
anticipates that it will continue to do so in the future. The Company recorded
research and development expenses of $39.4 million, $6.8 million and $4.2
million during 2001, 2000 and 1999, respectively.
SALES AND MARKETING
The Company intends to be a direct marketer or co-marketer of its
pharmaceutical products by building a sales and marketing infrastructure in the
United States to launch and fully realize the commercial potential of our
products. For international product sales, the Company intends to distribute its
products through collaborations with third parties.
MANUFACTURING
The Company's ability to conduct clinical trials on a timely basis, to
obtain regulatory approvals and to commercialize its products will depend in
part upon its ability to manufacture its products, either directly or through
third parties, at a competitive cost and in accordance with applicable FDA and
other regulatory requirements, including current Good Manufacturing Practice
(cGMP) regulations.
We currently rely on third parties to manufacture our products. In December
2000, the Company signed a two-year agreement with Avecia Ltd., a leading
multinational manufacturer of pharmaceutical products, to supply quantities of
its lead antisense compound, Genasense(TM). The Company is currently negotiating
a longer term supply agreement to accommodate an anticipated increase in its
product needs for expanded clinical trials and potential marketing launch.
9
SUBSIDIARIES AND AFFILIATES
ANDROGENICS TECHNOLOGIES, INC.
Androgenics Technologies, Inc. ("Androgenics"), acquired in 1999, is a
wholly-owned subsidiary of Genta with license rights to a series of compounds
invented at the University of Maryland at Baltimore to treat prostate cancer. A
lead compound, known as G20,000, has been selected for further development and
the Company currently anticipates commencing animal toxicology tests using
G20,000 in 2002. If results of these and other pre-clinical tests are positive,
Genta could then file an IND with the FDA to begin clinical testing of G20,000.
10
JBL SCIENTIFIC, INC.
Prior to 1999, the Company had manufactured and marketed specialty
biochemicals and intermediate products to the in vitro diagnostic and
pharmaceutical industries through its manufacturing subsidiary, JBL Scientific,
Inc. ("JBL"), a California corporation that was acquired in February 1991. On
March 19, 1999, the Company entered into an Asset Purchase Agreement with
Promega Corporation whereby its wholly owned subsidiary, Promega Biosciences,
Inc. ("Promega"), acquired substantially all of the assets and assumed certain
liabilities of JBL. JBL has been reported as a discontinued operation in the
accompanying consolidated financial statements for the year ended December 31,
1999 (Note 15).
GENTA EUROPE
During 1995, Genta Pharmaceuticals Europe S.A. ("Genta Europe"), a
wholly-owned subsidiary of Genta, received funding in the form of a loan from
ANVAR, a French government agency, in the amount of FF5.4 million (or
approximately US$.729 million at December 31, 2001) with a scheduled maturity of
December 31, 2002. Pursuant to the loan agreement with ANVAR, the utilization of
the proceeds was intended to fund research and development activities. In
October 1996, in connection with a restructuring of Genta's operations, Genta
terminated all scientific personnel of Genta Europe. In February 1998, ANVAR
asserted that Genta Europe was not in compliance with the ANVAR Agreement, and
that ANVAR might request immediate repayment of the loan. In July 1998, ANVAR
notified Genta Europe of its demand for accelerated repayment of the loan in the
amount of FF4.2 million (or approximately US$.567 million at December 31, 2001)
and subsequently notified us that Genta was liable as a guarantor on the note.
Based on the advice of French counsel, we do not believe that ANVAR is entitled
to accelerated repayment under the terms of the ANVAR Agreement. We also
believe it to be unlikely that Genta will incur any liability in this matter,
although there can be no assurance thereof.
In June 1998, Marseille Amenagement, a company affiliated with the city of
Marseilles, France, filed suit in France to evict Genta Europe from its
facilities in Marseilles and to demand payment of alleged back rent due and of a
lease guarantee for nine years rent. Following the filing of this claim and in
consideration of the request for repayment of the loan from ANVAR, Genta
Europe's Board of Directors directed the management to declare a "Cessation of
Payment." Under this procedure, Genta Europe ceased operations and terminated
its only remaining employee. A liquidator was appointed by the Court to take
control of any assets of Genta Europe and to make payment to creditors. In
December 1998, the Court in Marseilles dismissed the case against Genta Europe
and indicated that it had no jurisdiction against Genta Incorporated. In August
1999, Marseille Amenagement instituted legal proceedings against us in the
Commercial Court of Marseilles, alleging back rent and early termination
receivables aggregating FF2.5 million (or approximately US$.338 million at
December 31, 2001). On October 8, 2001, the Commercial Court of Marseilles
rendered their decision which declared the action brought by Marseille
Amenagement as admissible and ordered us to pay an amount of FF1.9 million (or
approximately US$.260 million at December 31, 2001). The Company does not
believe that Marseille Amenagement is entitled to payment and it is currently
considering whether to appeal this decision or negotiate with Marseille
Amenagement to achieve a mutually satisfactory resolution.
At December 31, 2001, the Company has accrued a net liability of $.350
million related to the liquidated subsidiary and related matters which
management believes is adequate to provide for these contingencies.
GENTA JAGO
Genta Jago Technologies B.V. ("Genta Jago") is a joint venture formed by
SkyePharma PLC and Genta. On March 4, 1999, SkyePharma PLC (on behalf of itself
and its affiliates) entered into an interim agreement with Genta (the "Interim
JV Agreement") pursuant to which the parties to the joint venture released each
other from all liability relating to unpaid development costs and funding
obligations of Genta Jago. Under the terms of the Interim JV Agreement,
SkyePharma PLC assumed responsibility for substantially all the obligations of
the joint venture to third parties as well as further development of the product
line. Pursuant to the terms of the agreement, earnings of the joint venture are
to be allocated equally between the two parties. Accordingly, Genta recognized
$.502 million as its equity in net income of the joint venture during the first
quarter of 2000. Since the first quarter of 2000, there have been no earnings or
losses of the joint venture to be allocated between the two parties and we are
currently seeking to terminate our involvement with the joint venture.
11
HUMAN RESOURCES
As of March 2002, Genta had 60 employees, nine of whom hold doctoral
degrees. There are 40 employees engaged in development activities and 20 are in
administration. Most of the management and professional employees of the Company
have had prior experience and positions with pharmaceutical and biotechnology
companies. Genta believes it maintains satisfactory relations with its
employees.
C. GOVERNMENT REGULATION
Regulation by governmental authorities in the United States and foreign
countries is a significant factor in the Company's ongoing research and product
development activities and in the manufacture and marketing of the Company's
proposed products. All of the Company's therapeutic products will require
regulatory approval by governmental agencies prior to commercialization. In
particular, human therapeutic products are subject to rigorous preclinical and
clinical testing and pre-market approval procedures by the FDA and similar
authorities in foreign countries. Various federal, and in some cases state,
statutes and regulations also govern or influence the development, testing,
manufacturing, safety, labeling, storage, record keeping and marketing of such
products. The lengthy process of seeking these approvals, and the subsequent
compliance with applicable federal and, in some cases, state statutes and
regulations, require the expenditure of substantial resources. Any failure by
the Company, its collaborators or its licensees to obtain, or any delay in
obtaining, regulatory approvals could adversely affect the marketing of any
products developed by the Company and its ability to receive product or royalty
revenue.
The activities required before a new pharmaceutical agent may be marketed
in the United States begin with preclinical testing. Preclinical tests include
laboratory evaluation of product chemistry and animal studies to assess the
potential safety and efficacy of the product and its formulations. The results
of these studies must be submitted to the FDA as part of an Investigational New
Drug Application ("IND"). An IND becomes effective within 30 days of filing with
the FDA unless the FDA imposes a clinical hold on the IND. In addition, the FDA
may, at any time, impose a clinical hold on ongoing clinical trials. If the FDA
imposes a clinical hold, clinical trials cannot commence or recommence, as the
case may be, without prior FDA authorization and then only under terms
authorized by the FDA. Typically, clinical testing involves a three-phase
process. In Phase 1, clinical trials are conducted with a small number of
subjects to determine the early safety profile and the pattern of drug
distribution and metabolism. In Phase 2, clinical trials are conducted with
groups of patients afflicted with a specific disease in order to determine
preliminary efficacy, optimal dosages and expanded evidence of safety. In Phase
3, large-scale, multi-center, comparative clinical trials are conducted with
patients afflicted with a target disease in order to provide enough data for the
statistical proof of efficacy and safety required by the FDA and others. In the
case of products for life-threatening diseases, the initial human testing is
generally done in patients rather than in healthy volunteers. Since these
patients are already afflicted with the target disease, it is possible that such
studies may provide results traditionally obtained in Phase 2 trials. These
trials are frequently referred to as "Phase 1/2A" trials.
The results of the preclinical and clinical testing, together with
chemistry, manufacturing and control information, are then submitted to the FDA
for a pharmaceutical product in the form of a New Drug Application ("NDA"), for
a biological product in the form of a Biologics License Application ("BLA") for
approval to commence commercial sales. In responding to an NDA, BLA or PMA, the
FDA may grant marketing approval, request additional information or deny the
application if it determines that the application does not satisfy its
regulatory approval criteria. There can be no assurance that the approvals that
are being sought or may be sought by the Company in the future will be granted
on a timely basis, if at all, or if granted will cover all the clinical
indications for which the Company is seeking approval or will not contain
significant limitations in the form of warnings, precautions or
contraindications with respect to conditions of use.
In circumstances where a company intends to develop and introduce a novel
formulation of an active drug ingredient already approved by the FDA, clinical
and preclinical testing requirements may not be as extensive. Limited additional
data about the safety and/or effectiveness of the proposed new drug formulation,
along with chemistry and manufacturing information and public information about
the active ingredient, may be satisfactory for product approval. Consequently,
the new product formulation may receive marketing approval more rapidly than a
traditional full NDA, although no assurance can be given that a product will be
granted such treatment by the FDA.
For clinical investigation and marketing outside the United States, the
Company is or may be subject to foreign regulatory requirements governing human
clinical trials and marketing approval for drugs. The requirements governing the
conduct of clinical trials, product licensing, pricing and reimbursement vary
widely from country to
12
country. The Company's approach is to design its European clinical trial studies
to meet FDA, European Economic Community ("EEC") and other European countries'
standards. At present, the marketing authorizations are applied for at a
national level, although certain EEC procedures are available to companies
wishing to market a product in more than one EEC member state. If the competent
authority is satisfied that adequate evidence of safety, quality and efficacy
has been presented, a market authorization will be granted. The registration
system proposed for medicines in the EEC after 1992 is a dual one in which
products, such as biotechnology and high technology products and those
containing new active substances, will have access to a central regulatory
system that provides registration throughout the entire EEC. Other products will
be registered by national authorities under the local laws of each EEC member
state. With regulatory harmonization finalized in the EEC, the Company's
clinical trials will be designed to develop a regulatory package sufficient for
multi-country approval in the Company's European target markets without the need
to duplicate studies for individual country approvals. This approach also takes
advantage of regulatory requirements in some countries, such as in the United
Kingdom, which allow Phase 1 studies to commence after appropriate toxicology
and preclinical pharmacology studies, prior to formal regulatory approval.
Prior to the enactment of the Drug Price Competition and Patent Term
Restoration Act of 1984 (the "Waxman/Hatch Act"), the FDA, by regulation,
permitted certain pre-1962 drugs to be approved under an abbreviated procedure
which waived submission of the extensive animal and human studies of safety and
effectiveness normally required to be in an NDA. Instead, the manufacturer only
needed to provide an Abbreviated New Drug Application ("ANDA") containing
labeling; information on chemistry and manufacturing procedures and data
establishing that the original "pioneer" product and the proposed "generic"
product are bioequivalent when administered to humans.
Originally, the FDA's regulations permitted this abbreviated procedure only
for copies of a drug that was approved by the FDA as safe before 1962 and which
was subsequently determined by the FDA to be effective for its intended use. In
1984, the Waxman/Hatch Act extended permission to use the abbreviated procedure
established by the FDA to copies of post-1962 drugs subject to the submission of
the required data and information, including data establishing bioequivalence.
However, effective approval of such ANDAs was dependent upon there being no
outstanding patent or non-patent exclusivity.
Additionally, the FDA allows, under section 505(b)(2) of the Food Drug and
Cosmetic Act, for the submission and approval of a hybrid application for
certain changes in drugs which, but for the changes, would be eligible for an
effective ANDA approval. Under these procedures the applicant is required to
submit the clinical efficacy and/or safety data necessary to support the changes
from the ANDA eligible drug (without submitting the basic underlying safety and
efficacy data for the chemical entity involved) plus manufacturing and chemistry
data and information. Effective approval of a 505(b)(2) application is dependent
upon the ANDA-eligible drug upon which the applicant relies for the basic safety
and efficacy data being subject to no outstanding patent or non-patent
exclusivity. As compared to an NDA, an ANDA or a 505(b)(2) application typically
involves reduced research and development costs. However, there can be no
assurance that any such applications will be approved. Furthermore, the supply
of raw materials must also be approved by the FDA.
The Company is also subject to various foreign, federal, state and local
laws, regulations and recommendations relating to safe working conditions,
laboratory and manufacturing practices, the experimental use of animals and the
use, manufacture, storage, handling and disposal of hazardous or potentially
hazardous substances, including radioactive compounds and infectious disease
agents, used in connection with the Company's research and development work and
manufacturing processes. Although the Company believes it is in compliance with
these laws and regulations in all material respects, there can be no assurance
that the Company will not be required to incur significant costs to comply with
such regulations in the future.
D. COMPETITION
In many cases, the Company's products under development will be competing
with existing therapies for market share. In addition, a number of companies are
pursuing the development of antisense technology and controlled-release
formulation technology and the development of pharmaceuticals utilizing such
technologies. The Company competes with fully integrated pharmaceutical
companies that have more substantial experience, financial and other resources
and superior expertise in research and development, manufacturing, testing,
obtaining regulatory approvals, marketing and distribution. Smaller companies
may also prove to be significant competitors, particularly through their
collaborative arrangements with large pharmaceutical companies or academic
13
institutions. Furthermore, academic institutions, governmental agencies and
other public and private research organizations have conducted and will continue
to conduct research, seek patent protection and establish arrangements for
commercializing products. Such products may compete directly with any products
that may be offered by the Company.
The Company's competition will be determined in part by the potential
indications for which the Company's products are developed and ultimately
approved by regulatory authorities. For certain of the Company's potential
products, an important factor in competition may be the timing of market
introduction of the Company's or competitors' products. Accordingly, the
relative speed with which Genta can develop products, complete the clinical
trials and approval processes and supply commercial quantities of the products
to the market are expected to be important competitive factors. The Company
expects that competition among products approved for sale will be based, among
other things, on product efficacy, safety, reliability, availability, price,
patent position and sales, marketing and distribution capabilities. The
development by others of new treatment methods could render the Company's
products under development non-competitive or obsolete.
The Company's competitive position also depends upon its ability to attract
and retain qualified personnel, obtain patent protection or otherwise develop
proprietary products or processes and secure sufficient capital resources for
the often substantial period between technological conception and commercial
sales.
E. CERTAIN RISKS AND UNCERTAINTIES RELATED TO THE COMPANY'S BUSINESS
In addition to the other information contained in this Annual Report on
Form 10-K, the following factors should be considered carefully.
We may be unsuccessful in our efforts to commercialize our pharmaceutical
products, such as Ganite(R) and Genasense(TM).
The commercialization of our pharmaceutical products involves a number of
significant challenges. In particular, our ability to commercialize products,
such as Ganite(R) and Genasense(TM), depends, in large part, on the success of
our clinical development programs, our efforts to obtain regulatory approval and
our sales and marketing efforts directed at physicians, patients and third-party
payors. A number of factors could affect these efforts, including:
- our ability to demonstrate clinically that our products have utility
and are safe;
- delays or refusals by regulatory authorities in granting marketing
approvals;
- our limited financial resources and sales and marketing experience
relative to our competitors;
- actual and perceived differences between our products and those of our
competitors;
- the availability and level of reimbursement for our products by
third-party payors;
- incidents of adverse reactions to our products;
- side effects or misuse of our products and the unfavorable publicity
that could result; and
- the occurrence of manufacturing, supply or distribution disruptions.
Ultimately, our efforts may not prove to be as effective as the efforts of
our competitors. In the United States and elsewhere, our products will face
significant competition. The principal conditions on which our product
development efforts are focused and some of the other disorders for which we are
conducting additional studies, are currently treated with several drugs, many of
which have been available for a number of years or are available in inexpensive
generic forms. Thus, even if we obtain regulatory approvals, we will need to
demonstrate to physicians, patients and third-party payors that the cost of our
products is reasonable and appropriate in light of their safety and efficacy,
the price of competing products and the relative health care benefits to the
patient. If we are unable to demonstrate that the costs of our products are
reasonable and appropriate in light of these factors, we will likely not be
successful in
14
commercializing our products, in which case our financial performance will
suffer and our long-term viability will be threatened.
We intend to be a direct marketer of products in the United States. Our
inability to build a sales force capable of marketing our pharmaceutical
products will adversely affect our sales and limit the commercial success of our
products.
We anticipate that we will incur additional losses and we may never be
profitable.
We have not been profitable. We have incurred substantial operating losses
associated with ongoing research and development activities, pre-clinical
testing, clinical trials, regulatory submissions and manufacturing activities.
From the period since our inception to December 31, 2001, we have incurred a
cumulative net loss of $198.7 million. We may never achieve revenue sufficient
for us to attain profitability.
Our business will suffer if we fail to obtain timely funding.
Our operations to date have required significant cash expenditures. Based
on our current operating plan, we believe that our available resources,
including the proceeds from our recent private offering, will be adequate to
satisfy our capital needs into 2003. 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 U.S. Food and Drug Administration ("FDA") and other regulatory
authorities. In order to commercialize our products, we will need to raise
additional financing and we intend to seek additional financing. We may obtain
that financing through public and private offerings of our securities, including
debt or equity financing, or through collaborative or other arrangements with
research institutions and corporate partners. We may not be able to obtain
adequate funds for our operations from these sources when needed or on
acceptable terms. A collaboration or similar arrangement may require us to
license valuable intellectual property to, or share substantial economic
benefits with, our collaborators. If we raise additional capital by issuing
equity, or securities convertible into equity, our stockholders may experience
dilution and share prices may decline. Any debt financing may result in
restrictions on our spending or payment of dividends.
If we are unable to raise additional financing, we will need to do one or
more of the following:
- delay, scale back or eliminate some or all of our research and product
development programs;
- license third parties to develop and commercialize products or
technologies that we would otherwise seek to develop ourselves;
- attempt to sell our company;
- cease operations; or
- declare bankruptcy.
Many of our products are in an early stage of development, and we may never
receive regulatory approval for those products.
Most of our resources have been dedicated to the research and development
of potential antisense pharmaceutical products such as Genasense(TM), based upon
oligonucleotide technology. While we have demonstrated the activity of antisense
oligonucleotide technology in model systems in vitro and in animals, among our
products, only Genasense(TM) has been tested in humans. Several of our other
technologies that serve as a possible basis for pharmaceutical products are only
in pre-clinical testing. Results obtained in pre-clinical studies or early
clinical investigations are not necessarily indicative of results that will be
obtained in extended human clinical trials. Our products may prove to have
undesirable and unintended side effects or other characteristics that may
prevent our obtaining FDA or foreign regulatory approval for any indication. In
addition, it is possible that research and discoveries by others will render our
oligonucleotide technology obsolete or noncompetitive.
15
Clinical trials are costly and time consuming and are subject to delays; our
business would suffer if the development process relating to our products is
subject to meaningful delays.
Clinical trials are very costly and time-consuming. The length of time
required to complete a clinical study depends upon several factors, including
the size of the patient population, the ability of patients to get to the site
of the clinical study, and the criteria for determining which patients are
eligible to join the study. Delays in patient enrollment could delay completion
of a clinical study and increase its costs, which could also delay the
commercial sale of the drug that is the subject of the clinical trial.
Our commencement and rate of completion of clinical trials also may be
delayed by many other factors, including the following:
- inability to obtain sufficient quantities of materials for use in
clinical trials;
- inability to adequately monitor patient progress after treatment;
- unforeseen safety issues;
- the failure of the products to perform well during clinical trials;
and
- government or regulatory delays.
If we fail to obtain the necessary regulatory approvals, we cannot market
and sell our products in the United States or in other countries and our
long-term viability would be threatened.
The FDA and comparable regulatory agencies in foreign countries impose
substantial pre-market approval requirements on the introduction of
pharmaceutical products. These requirements involve lengthy and detailed
pre-clinical and clinical testing and other costly and time-consuming
procedures. Satisfaction of these requirements typically takes several years or
more depending upon the type, complexity and novelty of the product. While
limited trials of some of our products have produced favorable results, we
cannot apply for FDA approval to market any of our products under development
until pre-clinical and clinical trials on the product are successfully
completed. Several factors could prevent successful completion or cause
significant delays of these trials, including an inability to enroll the
required number of patients or failure to demonstrate adequately that the
product is safe and effective for use in humans. If safety concerns develop, the
FDA could stop our trials before completion. We may not market or sell any
product for which we have not obtained regulatory approval. We cannot assure
that the FDA or other regulatory agencies will ever approve the use of our
products that are under development. If the patient populations for which our
products are approved are not sufficiently broad, or if approval is accompanied
by unanticipated labeling restrictions, the commercial success of our products
could be limited, at best, which would adversely affect our long-term viability.
We may be unable to obtain or enforce patents and other proprietary rights
to protect our business; we could become involved in patent litigation that
could cause us to incur additional costs and delay or prevent our introduction
of new drugs to market.
Our success will depend to a large extent on our ability to:
- obtain U.S. and foreign patent or other proprietary protection for our
technologies, products and processes;
- preserve trade secrets; and
- operate without infringing the patent and other proprietary rights of
third parties.
Legal standards relating to the validity of patents covering pharmaceutical
and biotechnological inventions and the scope of claims made under these types
of patents are still developing and involve complex legal and factual questions.
As a result, our ability to obtain and enforce patents that protect our drugs is
highly uncertain.
16
We hold numerous U.S. and international patents covering aspects of our
technology, which include novel compositions of matter, use, methods of
large-scale synthesis and methods of controlling gene expression. Nevertheless,
we may not receive any issued patents based on pending or future applications.
Moreover, our issued patents may not contain claims sufficiently broad to
protect us against competitors with similar technology. Additionally, our
patents, the patents of our business partners and patents for which we have
license rights may be challenged, narrowed, invalidated or circumvented.
Furthermore, rights granted under our patents may not cover commercially
valuable drugs or processes and may not provide us with any competitive
advantage.
The pharmaceutical and biotechnology industries have been characterized by
time-consuming an 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
expense, 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 rights,
even if resolved in our favor, could be substantial. Some of our competitors may
be able to sustain the costs of complex patent litigation more effectively than
we can because of their substantially greater resources. Uncertainties resulting
from the initiation and continuation of any patent or related litigation could
have a material adverse effect on our ability to compete in the marketplace.
We also may be required to participate in interference proceedings declared
by the U.S. Patent and Trademark Office and in International Trade Commission
proceedings aimed at preventing the importing of drugs that would compete
unfairly with our drugs. These types of proceedings could cause us to incur
considerable costs.
We rely on our contractual collaborative arrangements with research
institutions and corporate partners for development and commercialization of our
products, and our business could suffer if we are not able to enter into
suitable arrangements or if our collaborative arrangements are not successful in
developing and commercializing products.
We have entered into of collaborative relationships relating to specific
disease targets and other research activities in order to augment our internal
research capabilities and to obtain access to specialized knowledge and
expertise. The loss of any of these collaborative relationships could have a
material adverse effect on our business. In addition, our business strategy
depends in part on our continued ability to develop and maintain relationships
with leading academic and research institutions and independent researchers. The
competition for these relationships is intense, and we can give no assurances
that we will be able to develop and maintain these relationships on acceptable
terms.
We also seek strategic alliances with corporate partners, primarily
pharmaceutical and biotechnology companies, which are intended to help us
develop and commercialize drugs. Various problems can arise in strategic
alliances. A partner responsible for conducting clinical trials and obtaining
regulatory approval may fail to develop a marketable drug. A partner may decide
to pursue an alternative strategy or focus its efforts on alliances or other
arrangements with third parties. A partner that has been granted marketing
rights for a certain drug within a geographic area may fail to market the drug
successfully. Consequently, strategic alliances that we may enter into may not
be scientifically or commercially successful. In this regard, Genta Jago
Technologies B.V., a joint venture we entered into to develop oral
controlled-release drugs, has not resulted in any commercial products, and we
intend to seek to terminate our involvement in this joint venture. Moreover, we
may be unable to negotiate advantageous strategic alliances in the future. Our
failure to enter into strategic alliances, or the failure of a strategic
alliance to achieve its goals, could harm our efforts to develop and
commercialize our drugs.
The raw materials for our products are produced by a limited number of
suppliers, and our business could suffer if we cannot obtain needed quantities
at acceptable price and quality.
17
The raw materials that we require to manufacture our drugs, particularly
oligonucleotides, are available from only a few suppliers. If these suppliers
cease to provide us with the necessary raw materials or fail to provide us with
adequate supply of materials at an acceptable price and quality, we could be
materially adversely affected.
If third-party payors do not provide coverage and reimbursement for use of
our products, we may not be able to successfully commercialize our products.
Our ability to commercialize drugs successfully will depend in part on the
extent to which various third-party payors are willing to reimburse patients for
the costs of our drugs and related treatments. These third-party payors include
government authorities, private health insurers, and other organizations, such
as health maintenance organizations. Third-party payors often challenge the
prices charged for medical products and services. Accordingly, if less costly
drugs are available, third-party payors may not authorize or may limit
reimbursement for our drugs, even if they are safer or more effective than the
alternatives. In addition, the federal government and private insurers have
changed and continue to consider ways to change, the manner in which health care
services are provided and paid for in the United States. In particular, these
third-party payors are increasingly attempting to contain health care costs by
limiting both coverage and the level of reimbursement for new therapeutic
products. In the future, it is possible that the government may institute price
controls and further limits on Medicare and Medicaid spending. These controls
and limits could affect the payments we collect from sales of our products.
Internationally, medical reimbursement systems vary significantly, with some
countries requiring application for, and approval of, government or third-party
reimbursement. In addition, some medical centers in foreign countries have fixed
budgets, regardless of levels of patient care. Even if we succeed in bringing
therapeutic products to market, uncertainties regarding future health care
policy, legislation and regulation, as well as private market practices, could
affect our ability to sell our products in quantities, or at prices that will
enable us to achieve profitability.
Our business exposes us to potential product liability that may have a
negative effect on our financial performance and our business generally.
The administration of drugs to humans, whether in clinical trials or
commercially, exposes us to potential product and professional liability risks,
which are inherent in the testing, production, marketing and sale of human
therapeutic products. Product liability claims can be expensive to defend and
may result in large judgments or settlements against us, which could have a
negative effect on our financial performance and materially adversely affect our
business. We maintain product liability insurance (subject to various
deductibles), but our insurance coverage may not be sufficient to cover claims.
Furthermore, we cannot be certain that we will always be able to maintain or
increase our insurance coverage at an affordable price. Even if a product
liability claim is not successful, the adverse publicity and time and expense of
defending such a claim may interfere with our business.
If we cease doing business and liquidate our assets, we are required to
distribute proceeds to holders of our preferred stock before we distribute
proceeds to holders of our common stock.
In the event of our dissolution or liquidation, holders of our common stock
will not receive any proceeds until holders of the outstanding shares of our
Series A Preferred Stock receive a liquidation preference in the amount of
approximately $13.1 million.
The nature of the business activities or positions of our principal
stockholders and present and future officers and directors may involve conflicts
of interest.
One of our principal stockholders is Paramount Capital Asset Management,
Inc. ("PCAM"). The sole stockholder and chairman of PCAM is also the chairman of
Paramount Capital Inc. ("PCI") and of Paramount Capital Investment LLC
("Paramount LLC", and together with PCAM, PCI and their affiliates, the
"Paramount Companies"). Together, the Paramount Companies beneficially own
approximately 46% of our common stock when calculated on a fully diluted basis.
In addition, PCAM is the investment manager for the Aries Funds (comprised of
Aries Select I, LLC, Aries Select II, LLC, and Aries Select, Ltd.). The Aries
Funds have the right to convert Series A Preferred Stock and exercise warrants
that they own into a significant portion of the outstanding common stock. In the
regular course of business, the Paramount Companies evaluate and pursue
investment opportunities in biomedical and pharmaceutical products, technologies
and companies. Due to the ownership and control of the Paramount Companies and
the Aries Funds and their involvement with other companies in the life sciences
area, some of our current or future officers and directors may
18
from time to time serve as officers or directors of other biopharmaceutical or
biotechnology companies. We cannot assure you that these other companies will
not have interests in conflict with ours.
Concentration of ownership of our stock could delay or prevent a change of
control.
Our directors, executive officers and principal stockholders (the Paramount
Companies and the Aries Funds) beneficially own approximately 54% of our
outstanding common stock and preferred stock. They also have, through the
exercise of options and warrants, the right to acquire additional common stock
and Series A Preferred Stock. As a result, these stockholders, if acting
together, have the ability to significantly influence the outcome of corporate
actions requiring stockholder approval. This concentration of ownership may have
the effect of delaying or preventing a change in control of Genta.
Provisions in our certificate of incorporation and Delaware law may
discourage a takeover and prevent our stockholders from receiving a premium for
their shares.
Our certificate of incorporation gives our board of directors the power to
issue shares of preferred stock without approval of the holders of common stock.
This preferred stock could have voting rights, including voting rights that
could be superior to that of our common stock. The approval of 66-2/3% of our
voting stock is required to approve certain transactions and to take certain
stockholder actions, including the amendment of our certificate of
incorporation. In addition, we are subject to Section 203 of the Delaware
General Incorporation Law, which contains restrictions on stockholder action to
acquire control of Genta. These provisions could discourage third parties from
seeking to obtain control of us and, therefore, could prevent our stockholders
from receiving a premium for their shares.
Claims of Genta's Default Under Various Agreements
During 1995, Genta Europe, one of our wholly-owned subsidiaries, received
funding in the form of a loan from ANVAR, a French government agency, in the
amount of FF5.4 million (or approximately US$.729 million at December 31, 2001)
with a scheduled maturity of December 31, 2002. Pursuant to the loan agreement
with ANVAR, the utilization of the proceeds was intended to fund research and
development activities. In October 1996, in connection with a restructuring of
our operations, Genta terminated all scientific personnel of Genta Europe. In
February 1998, ANVAR asserted that Genta Europe was not in compliance with the
ANVAR Agreement, and that ANVAR might request immediate repayment of the loan.
In July 1998, ANVAR notified Genta Europe of its demand for accelerated
repayment of the loan in the amount of FF4.2 million (or approximately US$.567
million at December 31, 2001) and subsequently notified us that Genta was liable
as a guarantor on the note. Based on the advice of French counsel, we do not
believe that ANVAR is entitled to accelerated repayment under the terms of the
ANVAR Agreement. We also believe it to be unlikely that Genta will incur any
liability in this matter, although there can be no assurance thereof.
On June 30, 1998, Marseille Amenagement, a company affiliated with the city
of Marseilles, France, filed suit in France to evict Genta Europe from its
facilities in Marseilles and to demand payment of alleged back rent due and of a
lease guarantee for nine years' rent. Following the filing of this claim and in
consideration of the request for repayment of the loan from ANVAR, Genta
Europe's Board of Directors directed the management to declare a "Cessation of
Payment." Under this procedure, Genta Europe ceased operations and terminated
its only remaining employee. A liquidator was appointed by the Court to take
control of any assets of Genta Europe and to make payment to creditors. In
December 1998, the Court in Marseilles dismissed the case against Genta Europe
and indicated that it had no jurisdiction against Genta Incorporated. In August
1999, Marseille Amenagement instituted legal proceedings against us in the
Commercial Court of Marseilles, alleging back rent and early termination
receivables aggregating FF2.5 million (or approximately US$.338 million at
December 31, 2001). On October 8, 2001, the Commercial Court of Marseilles
rendered their decision which declared the action brought by Marseille
Amenagement was admissible and ordered Genta to pay an amount of FF1.9 million
(or $.260 million at October 8, 2001). We do not believe that Marseille
Amenagement is entitled to payment and we are currently addressing alternative
courses of action, including an appeal of this decision, or negotiations with
Marseille Amenagement to achieve a mutually satisfactory resolution.
At December 31, 2001, the Company has accrued a net liability of $.350
million related to the Liquidated Subsidiary and these related matters.
19
We have not paid, and do not expect to pay in the future, dividends on our
common stock.
We have never paid cash dividends on our common stock and do not anticipate
paying any such dividends in the foreseeable future. We currently intend to
retain our earnings, if any, for the development of our business.
We are dependent on our key executives and scientists, and the loss of this
personnel or the failure to attract additional qualified personnel could harm
our business.
Our business is highly dependent on our key executives and scientific
staff. The loss of key personnel or the failure to recruit necessary additional
or replacement personnel will likely impede the achievement of our development
objectives. There is intense competition for qualified personnel in the
pharmaceutical and biotechnology industries, and there can be no assurance that
we will be able to attract and retain the qualified personnel necessary for the
development of our business.
Our stock price is volatile.
The market price of our common stock, like that of the common stock of many
other biopharmaceutical companies, has been and likely will continue to be
highly volatile. Factors that could have a significant impact on the future
price of our common stock include:
- the results of pre-clinical studies and clinical trials by us or our
competitors;
- announcements of technological innovations or new therapeutic products
by us or our competitors;
- government regulation;
- developments in patent or other proprietary rights by us or our
respective competitors, including litigation; and o fluctuations in
our operating results, and market conditions for biopharmaceutical
stocks in general.
As of March 8, 2002, the Company had 66,565,781 shares of common stock
outstanding. Future sales of shares of common stock by existing stockholders,
holders of preferred stock who might convert such preferred stock into common
stock, and option and warrant holders who may exercise their options and
warrants to purchase common stock also could adversely affect the market price
of the common stock. Moreover, the perception that sales of substantial amounts
of our common stock might occur could adversely affect prevailing market prices.
ITEM 2. PROPERTIES
In November 2000, the Company relocated its headquarters from Lexington, MA
to Berkeley Heights, NJ and as of March 8, 2002, leases approximately 24,000
square feet of space. Such leases expire in February 2004 and June 2005.
ITEM 3. LEGAL PROCEEDINGS
Prior to 1999, the Company manufactured specialty biochemical products
through its manufacturing subsidiary, JBL Scientific, Inc. ("JBL). Effective May
10, 1999, substantially all of the assets and certain liabilities of JBL were
sold to Promega Biosciences, Inc. ("Promega"). Prior to the sale, in October
1996, JBL retained a chemical consulting firm to advise it with respect to an
incident of soil and groundwater contamination (the "Spill"). Sampling conducted
at the JBL facility revealed the presence of chloroform and perchloroethylenes
("PCEs") in the soil and groundwater at this site. A semi-annual
groundwater-monitoring program is being conducted, under the supervision of the
California Regional Water Quality Control Board, for purposes of determining
whether the levels of chloroform and PCEs have decreased over time. The results
of the latest sampling conducted by JBL show that PCEs and chloroform have
decreased in all but one of the monitoring sites. Based on an estimate provided
to the Company by the consulting firm, the Company accrued $65,000 in 1999
relating to remedial costs. Although the Company has agreed to indemnify Promega
in respect of this matter, in November 2001, the Company received from the
California Regional Water Quality Control Board notification on the completion
of site investigation and remedial action for these sites. The notification
stated that no further action related to this case is required.
In October, 1998, JBL received notice from Region IX of the Environmental
Protection Agency ("EPA") that JBL had been identified as a potentially
responsible party ("PRP") at the Casmalia Disposal Site, which is located in
Santa
20
Barbara, California. JBL has been designated as a de minimis PRP by the
EPA. Based on volume amounts from the EPA, the Company concluded that it was
probable that a liability had been incurred and accrued $75,000 during 1998. In
1999, the EPA estimated that the Company would be required to pay approximately
$63,200 to settle their potential liability. In December 2001, the Company
received a revised settlement proposal from the EPA in the amount of $32,600,
the terms of the settlement with the EPA containing standard contribution
protection and release language. This settlement amount of $32,600 was fully
paid in January 2002.
During May 2000, Promega notified Genta of two claims against Genta and
Genta's subsidiary, Genko Scientific, Inc. (f/k/a JBL Scientific, Inc.)
("Genko"), for indemnifiable damages in the aggregate amount of $2,820,000 under
the purchase agreement pursuant to which Promega aqcuired the assets of JBL.
Promega's letter stated that it intended to reduce to zero the principal amount
of the $1.2 million promissory note it issued as partial payment for the assets
of Genko and that therefore Genta owed Promega approximately $1.6 million. On
October 16, 2000 Genta filed suit in the US District Court of California against
Promega for the non payment of the $1.2 million note plus interest. On November
6, 2000, Promega filed a countersuit alleging indemnifiable damages in the
aggregate amount of $2,820,000. During the first quarter of 2001, the Company
agreed to resolve the matter with Promega, and, in connection therewith, agreed
to restructure its $1.2 million promissory note receivable to provide for a $.2
million non-interest bearing note due to be repaid by Promega upon final
resolution of certain environmental issues related to JBL and forgive all
accrued interest.
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, 2001.
21
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
The Company's common stock is traded on the Nasdaq National Market under
the symbol "GNTA." The following table sets forth, for the periods indicated,
the high and low sales prices for the common stock as reported by Nasdaq.
HIGH LOW
-------- ------
2001
First Quarter................................. $ 8.844 $5.063
Second Quarter.................................... 10.120 5.070
Third Quarter..................................... 12.770 7.900
Fourth Quarter.................................... 17.700 9.900
2000
First Quarter..................................... $14.000 $5.875
Second Quarter.................................... 11.813 6.438
Third Quarter..................................... 10.125 5.375
Fourth Quarter.................................... 10.000 7.250
(b) Holders
There were 570 holders of record of the Company's common stock as of March
8, 2002.
(c) Dividends
The Company has never paid cash dividends on its common stock and does not
anticipate paying any such dividends in the foreseeable future. The Company
currently intends to retain its earnings, if any, for the development of its
business.
22
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
(In thousands, except per share data) 2001 2000 1999 1998 1997
--------- --------- -------- -------- ---------
Consolidated Statements of Operations Data(3):
Revenues:
License revenue ................................................ $ 97 $ 177 $ 17 $ -- $ --
Royalties ...................................................... 49 5 -- -- --
Related party contract revenue ................................. -- -- -- 55 350
Collaborative research and development ......................... -- -- -- 50 50
-------- -------- -------- -------- --------
146 22 -- 105 400
-------- -------- -------- -------- --------
Costs and expenses:
Research and development ....................................... 39,355 6,830 4,205 2,114 3,309
General and administrative ..................................... 8,215 3,323 4,054 3,868 6,132
Equity related compensation .................................... 1,074 8,605 3,074 154 --
Promega Settlement ............................................. 1,000 -- -- -- --
LBC Settlement ................................................. -- -- -- 547 600
-------- -------- -------- -------- --------
49,644 18,758 11,333 6,683 10,041
-------- -------- -------- -------- --------
Loss from operations .............................................. (49,498) (18,736) (11,333) (6,578) (9,641)
Equity in net income (loss) of joint venture ...................... -- 502 2,448 (132) (1,193)
Net loss of liquidated foreign subsidiary ......................... -- -- -- (98) --
Other income, principally interest ................................ 2,785 5,783 23 (38) (2,850)
-------- -------- -------- -------- --------
Loss from continuing operations ................................... $(46,713) $(12,451) $ (8,862) $ (6,846) $(13,684)
Loss from discontinued operations ................................. -- -- (189) (739) (1,741)
Gain on sale of discontinued operations ........................... -- -- 1,607 -- --
-------- -------- -------- -------- --------
Net loss .......................................................... 46,713) (12,451) (7,444) (7,585) (15,425)
Preferred stock dividends ......................................... -- (3,443) (10,085) (633) (17,853)
-------- -------- -------- -------- --------
Net loss applicable to common shares .............................. $(46,713) $(15,894) $(17,529) $ (8,218) $(33,278)
======== ======== ======== ======== ========
Continuing operations ............................................. $ (0.84) $ (0.41) $ (1.07) $ (1.06) $ (7.13)
Discontinued operations ........................................... -- -- 0.08 (0.11) (0.39)
-------- -------- -------- -------- --------
Net loss per share (1) ............................................ $ (0.84) $ (0.41) $ (0.99) $ (1.17) $ (7.52)
======== ======== ======== ======== ========
Weighted average shares used in computing net loss per share ...... 55,829 38,659 17,784 7,000 4,422
======== ======== ======== ======== ========
Deficiency of earnings to meet fixed charges(2)
------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- -------- -------- --------
CONSOLIDATED BALANCE SHEET DATA(3):
Cash, cash equivalents and short-term investments ................. $54,086 $50,199 $10,101 $ 2,458 $ 8,456
Working capital ................................................... 42,709 48,321 9,434 3,629 5,807
Total assets ...................................................... 60,630 57,208 12,228 7,551 15,079
Notes payable and capital lease obligations, less current portion . -- -- -- -- --
Total stockholders' equity ........................................ 48,310 53,567 10,206 2,959 9,425
(1) Computed on the basis of net loss per common share described in Note 2 of
Notes to Consolidated Financial Statements.
(2) The Company has incurred losses and, thus, has had a deficiency in fixed
charge coverage since inception.
(3) The above selected financial data reflects discontinued operations and
balance sheet data of JBL as of May 10, 1999. See Note 15 to consolidated
financial statements.
23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Since its inception in February 1988, Genta has devoted its principal
efforts toward drug discovery, research and development. Genta has been
unprofitable to date and expects to incur substantial operating losses due to
continued requirements for ongoing and planned research and development
activities, pre-clinical and clinical testing, manufacturing activities,
regulatory activities, and establishment of a sales and marketing organization.
From its inception to December 31, 2001, the Company has incurred a cumulative
net loss of $198.7 million. The Company has experienced significant quarterly
fluctuations in operating results and it expects that these fluctuations in
revenues, expenses and losses will continue.
Genta's strategy is to build a product and technology portfolio primarily
focused on its oncology products. In this regard, effective March 1999, the
Company significantly reduced its involvement with respect to Genta Jago, its
50% owned R & D joint venture. The Company also sold substantially all of the
assets and certain liabilities of the Company's wholly owned specialty chemicals
subsidiary JBL Scientific, Inc. ("JBL") for cash, a promissory note and certain
pharmaceutical development services in support of Genta's Genasense(TM)
development project in May 1999. During 1998, the Company ceased its European
operations and liquidated Genta Europe, its European subsidiary. During 1999,
the Company closed its facilities in San Diego, California and moved its
headquarters to Lexington, Massachusetts. In October 2000, the Company relocated
its entire operation to Berkeley Heights, New Jersey.
RESULTS OF OPERATIONS
Genta has focused its resources on the development of its lead antisense
oligonucleotide, Genasense(TM). The following discussion of results of
operations relates to the Company's continuing operations:
SUMMARY OPERATING RESULTS
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------
INCREASE INCREASE
($ thousands) 2001 (DECREASE) 2000 (DECREASE) 1999
---- ---------- ---- ---------- ----
Revenues:
License fees $ 97 $ 80 $ 17 $ 17 $ -
Royalties 49 44 5 5 -
------- ------- ------- ------ -----
146 124 22 22 -
Costs and expenses:
Research and development 39,355 32,525 6,830 2,625 4,205
General and administrative 8,215 4,892 3,323 (731) 4,054
Promega settlement 1,000 1,000 - - -
Equity related compensation 1,074 (7,531) 8,605 5,531 3,074
----- ------- ----- ------- -----
49,644 30,886 18,758 7,425 11,333
------ ------ ------ ------ ------
Loss from operations (49,498) 30,762 (18,736) 7,403 (11,333)
Equity in net income of
joint venture - (502) 502 (1,946) 2,448
Other income 2,785 (2,998) 5,783 5,760 23
----- ------- ----- ----- -----
Net loss from continuing
operations $(46,713) $ 34,262 $(12,451) $ 3,589 $(8,862)
========= ======== ======= ======= =======
Operating revenues consisting of license fees and royalties were $.146
million in 2001 compared to $.022 million in 2000. These revenues were derived
from non-exclusive sub-license agreements involving antisense technology. These
agreements were initiated with Atugen AG and EpeGenesis Pharmaceuticals, Inc. in
2001, and Sequitur Incorporated and Oasis Biopharmaceuticals, Inc. in 2000. The
disposition of substantially all JBL assets in 1999 resulted in a significant
decrease in ongoing revenues, as all of the Company's historical product sales
were attributable to JBL.
24
Costs and expenses totaled $49.6 million in 2001 compared to $18.8 million
in 2000 and $11.3 million in 1999. These increases reflect additional clinical
trial activity and related drug supply, salaries and non-cash stock compensation
charges. Services and capabilities that have not been retained within the
Company are out-sourced through short-term contracts or from consultants.
Substantially, all pre-clinical biology and clinical trial work are now
conducted through such collaborations with external scientists and clinicians.
The Company anticipates that, if sufficient collaborative revenues and other
funding are available, research and development expenses may increase in future
years due to requirements for pre-clinical studies, clinical trials, the
Genasense(TM) antisense oligonucleotide program and increased regulatory costs.
The Company will continue to assess the potential cost benefit ratio of
developing its own antisense oligonucleotide manufacturing, and marketing and
sales activities if and as such products are successfully developed and approved
for marketing.
Research and development expenses totaled $39.4 million in 2001 compared to
$6.8 million in 2000 and $4.2 million in 1999. The increase from 1999 through
2001 is due primarily to drug supply costs, investigator and monitor fees
related to expanded clinical trials, along with increased patent amortization
costs relating to intellectual property acquisitions in 2000. It is anticipated
that research and development expenses will continue to increase in the future,
as the development program for Genasense(TM) expands. Furthermore, the Company
is also pursuing other opportunities for new product development candidates,
which, if successful, will require additional research and development expenses.
In an effort to focus its research and development on areas that provide
the most significant commercial opportunities, the Company continually evaluates
its ongoing programs in light of the latest market information and conditions,
availability of third-party funding, technological advances, and other factors.
As a result of such evaluation, the Company's product development plans have
changed from time to time, and the Company anticipates that they will continue
to do so in the future.
General and administrative expenses were $8.2 million in 2001 compared to
$3.3 million in 2000 and $4.1 million in 1999. Such expenses do not include
charges related to non-cash equity related compensation. The $4.9 million
increase from 2000 to 2001 reflects increased payroll costs associated with
additional headcount and increased marketing expenses offset by reduced patent
abandonment costs. The Company recorded charges to general and administrative
expenses of $.523 million in 1999 to account for the carrying value of abandoned
patents no longer related to the research and development efforts of the
Company. The amounts recorded in 2001 and 2000 were immaterial. The Company's
policy is to evaluate the appropriateness of carrying values of the unamortized
balances of long-lived and intangible assets on the basis of estimated future
cash flows (undiscounted) and other factors. If such evaluation were to identify
a material impairment of these assets, such impairment would be recognized by a
write-down of the applicable assets. The Company continues to evaluate the
continuing value of patents and patent applications, particularly as expenses to
prosecute or maintain these patents come due. Through this evaluation, the
Company may elect to continue to maintain these patents, seek to out-license
them, or abandon them.
The Company recorded charges to non-cash equity related compensation of
$1.1 million in 2001 compared to $8.6 million in 2000 and $3.1 million in 1999.
This decrease is primarily due to the acceleration of outstanding stock options
for the four members of the Company's Board of Directors who resigned in March
2000 (Note 13).
The Company had no equity in earnings of its joint venture (Genta Jago)
in 2001 compared to $.5 in 2000 and $2.4 million in 1999. On March 4, 1999,
SkyePharma PLC (on behalf of itself and its affiliates) entered into an interim
agreement with Genta (the "Interim JV Agreement") pursuant to which the parties
to the joint venture released each other from all liability relating to unpaid
development costs and funding obligations of Genta Jago. Under the terms of the
Interim JV Agreement, SkyePharma PLC assumed responsibility for substantially
all the obligations of the joint venture to third parties as well as further
development of the product line. Pursuant to the terms of the agreement,
earnings of the joint venture are to be allocated equally between the two
parties. Accordingly, Genta recognized $.502 million as its equity in net income
of the joint venture during the first quarter of 2000. Since the first quarter
of 2000, there have been no earnings or losses of the joint venture to be
allocated between the two parties.
25
Interest income has fluctuated significantly each year and is anticipated to
continue to fluctuate primarily due to changes in the levels of cash,
investments and interest rates during each period.
The Company recorded a gain on the sale of marketable securities of
approximately $.061 million in 2001 compared to $4.9 million in 2000, which
reflects a non-recurring gain on the disposition of securities in September
2000. Genta exercised 66,221 warrants to purchase shares of common stock of CV
Therapeutics, Inc. ("CV"). These warrants, which were restricted and not traded,
were issued to Genta by CV in connection with a licensing arrangement entered
into in 1993. The Company received approximately $4.9 million in cash upon the
sale of such common shares.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company has adopted all required Statements of Financial Accounting
Standards issued subsequent to December 31, 2000, as more fully discussed in
Note 2 to the Consolidated Financial Statements. Adoption of these standards did
not or are not expected to have a material effect on the Company's financial
position or results of operations.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are more fully described in Note 2 to
the consolidated financial statements. In preparing our financial statements,
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. We believe that
our most critical accounting policies relate to:
- Revenue recognition. The Company's policy is to recognize revenues
under license arrangements when delivery has occurred or services have
been rendered, persuasive evidence of an arrangement exists, the fee
has been determined to be fixed and determinable, and collectibility
is reasonably assured. Royalties are recognized when earned.
- Research and development costs. All such costs are expensed or
incurred, including raw material costs required to manufacture drugs
for clinical trials.
- Intangible assets. The Company's intangible assets consist primarily
of licensed technology and capitalized patent costs, and are amortized
using the straight-line method over their estimated useful lives. The
Company's policy is to evaluate the appropriateness of the carrying
values of the unamortized balances of intangible assets on the basis
of estimated future cash flows (undiscounted) and other factors. If
such evaluation were to indicate an impairment of these intangible
assets, such impairment would be recognized by a write-down of the
applicable assets. The Company evaluates the continuing value of
patents and patent applications each financial reporting period. As a
result of this evaluation, the Company may elect to continue to
maintain, seek to out-license, or abandon these patents.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily from
private placements and public offerings of its equity securities. Cash provided
from these offerings totaled approximately $207.8 million through December 31,
2001, including net proceeds of $32.2 million received in 2001, $40.0 million
received in 2000 and $10.4 million received in 1999. The Company used $35.0
million in operating activities during 2001, resulting from a net loss of $46.7
million, offset by non-cash charges and improved working capital aggregating
$11.7 million. At December 31, 2001, the Company had cash, cash equivalents and
short-term investments totaling $54.1 million compared to $50.2 million at
December 31, 2000. Management believes that at the current rate of spending,
primarily in support of on-
26
going and anticipated clinical trials, the Company will have sufficient cash
funds to maintain its present operations into the first quarter of 2003.
If the Company successfully secures sufficient levels of collaborative
revenues and other sources of financing, it expects to use such financing to
continue to expand its ongoing research and development activities, preclinical
testing and clinical trials, costs associated with the market introduction of
potential products, and expansion of its administrative activities.
The Company anticipates that significant additional sources of financing,
including equity financing, will be required in order for the Company to
continue its planned operations. The Company also anticipates seeking additional
product development opportunities from external sources. Such acquisitions may
consume cash reserves or require additional cash or equity. The Company's
working capital and additional funding requirements will depend upon numerous
factors, including: (i) the progress of the Company's research and development
programs; (ii) the timing and results of pre-clinical testing and clinical
trials; (iii) the level of resources that the Company devotes to sales and
marketing capabilities; (iv) technological advances; (v) the activities of
competitors; and (vi) the ability of the Company to establish and maintain
collaborative arrangements with others to fund certain research and development
efforts, to conduct clinical trials, to obtain regulatory approvals and, if such
approvals are obtained, to manufacture and market products.
Future minimum obligations at December 31, 2001 are as follows ($ thousands):
OPERATING DRUG PURCHASE
LEASES COMMITMENTS
--------- -------------
2002............................... $ 589 $11,750
2003............................... 694 -
2004............................... 432 -
2005............................... 322 -
2006............................... 15 -
Thereafter......................... - -
------ -------
Total............................ $2,052 $11,750
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's carrying values of cash, marketable securities, accounts
payable and accrued expenses are a reasonable approximation of their fair value.
The estimated fair values of financial instruments have been determined by the
Company using available market information and appropriate valuation
methodologies.
However, considerable judgment is required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates utilized in the
consolidated financial statements are not necessarily indicative of the amounts
that the Company could realize in a current market exchange. The Company has not
entered into, and does not expect to enter into, financial instruments for
trading or hedging purposes. The Company does not currently anticipate entering
into interest rate swaps and/or similar instruments.
Since the Company has liquidated its Genta Europe subsidiary, the Company
has no material currency exchange or interest rate risk exposure as of December
31, 2001. With the liquidation, there will be no ongoing exposure to material
adverse effect on the Company's business, financial condition, or results of
operation for sensitivity to changes in interest rates or to changes in currency
exchange rates.
27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
GENTA INCORPORATED
INDEX TO FINANCIAL STATEMENTS COVERED
BY REPORT OF INDEPENDENT AUDITORS
Genta Incorporated
Report of Independent Auditors........................................................................... 29
Consolidated Balance Sheets at December 31, 2001 and 2000................................................ 30
Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999............... 31
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2001, 2000 and 1999..... 32
Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999............... 34
Notes to Consolidated Financial Statements............................................................... 35
28
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Genta Incorporated
We have audited the accompanying consolidated balance sheets of Genta
Incorporated and its subsidiaries as of December 31, 2001 and 2000, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 2001.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
2001 and 2000, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 2001, in conformity
with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 21, 2002
29
GENTA INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
DECEMBER 31,
-------------------------------
2001 2000
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ................................................................. $ 38,098 $ 19,025
Short term investments .................................................................... 15,988 31,174
Notes receivable .......................................................................... 236 1,338
Prepaid expenses and other current assets ................................................. 707 425
--------- ---------
Total current assets ......................................................................... 55,029 51,962
--------- ---------
Property and equipment, net .................................................................. 1,848 758
Intangibles, net ............................................................................. 2,120 2,923
Prepaid royalties ............................................................................ 1,268 1,268
Deposits and other assets .................................................................... 365 297
--------- ---------
Total assets ................................................................................. $ 60,630 $ 57,208
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .......................................................................... $ 9,571 $ 613
Accrued expenses .......................................................................... 2,309 2,453
Other current liabilities ................................................................. 440 575
--------- ---------
Total current liabilities .................................................................... 12,320 3,641
--------- ---------
Commitments and contingencies
Stockholders' equity:
Series A convertible preferred stock, $.001 par value; 5,000,000 shares
authorized, 261,200 shares issued and outstanding at December 31, 2001
and 2000, respectively; liquidation value is $13,050 .................................... -- --
Common stock; $.001 par value; 95,000,000 shares authorized, 66,000,210
and 51,085,375 shares issued and outstanding at December 31, 2001
and 2000, respectively .................................................................. 66 51
Additional paid-in capital ................................................................ 248,685 206,451
Accumulated deficit ....................................................................... (198,662) (151,949)
Deferred compensation ..................................................................... (1,713) (1,081)
Accumulated other comprehensive (loss) income ............................................. (66) 95
--------- ---------
Total stockholders' equity ................................................................... 48,310 53,567
--------- ---------
Total liabilities and stockholders' equity ................................................... $ 60,630 $ 57,208
========= =========
See accompanying notes to consolidated financial statements.
30
GENTA INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
(Dollars in thousands, except per share data) 2001 2000 1999
------------ ------------ ------------
Revenues:
License fees ............................................ $ 97 $ 17 $ --
Royalties................................................ 49 5 --
------------ ------------ ------------
146 22 --
Costs and expenses:
Research and development ................................ 39,355 6,830 4,205
General and administrative .............................. 8,215 3,323 4,054
Promega settlement ...................................... 1,000 -- --
Equity related compensation ............................. 1,074 8,605 3,074
------------ ------------ ------------
49,644 18,758 11,333
------------ ------------ ------------
Loss from operations ....................................... (49,498) (18,736) (11,333)
Equity in net income of joint venture ..................... -- 502 2,448
Other income ............................................... 2,785 5,783 23
------------ ------------ ------------
Loss from continuing operations ............................ (46,713) (12,451) (8,862)
Loss from discontinued operations .......................... -- -- (189)
Gain on sale of discontinued operations .................... -- -- 1,607
------------ ------------ ------------
Net loss ................................................... (46,713) (12,451) (7,444)
Preferred stock dividends .................................. -- (3,443) (10,085)
------------ ------------ ------------
Net loss applicable to common shares ....................... $ (46,713) $ (15,894) $ (17,529)
============ ============ ============
Net (loss) income per share:
Continuing operations .................................... $ (0.84) $ (0.41) $ (1.07)
Discontinued operations .................................. -- -- 0.08
------------ ------------ ------------
Net loss per common share .................................. $ (0.84) $ (0.41) $ (0.99)
============ ============ ============
Shares used in computing net loss per
common share ............................................. 55,829 38,659 17,784
============ ============ ============
See accompanying notes to consolidated financial statements.
31
GENTA INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1999, 2000 and 2001
Accum-
ulated
Convertible Other
Preferred Compre- Total
Stock Common Stock Additional Accum- Accrued Deferred hensive Stock-
------------- ------------- Paid-in ulated Dividends Compen- Income holders'
(In thousands) Shares Amount Shares Amount Capital Deficit Payable sation (Loss) Equity
------ ------ ------- ------ ----------- --------- --------- -------- ------- -------
BALANCE AT JANUARY 1, 1999..... 633 $-- 10,426 $11 $131,260 $(132,054) $ 4,476 $ (733) $ -- $ 2,960
Comprehensive loss:
Net loss................... -- -- -- -- -- (7,444) -- -- -- (7,444)
---------
Total comprehensive loss... (7,444)
Issuance of common stock upon
conversion of convertible
preferred stock ........... (233) -- 8,918 9 1,634 -- (1,643) -- -- --
Issuance of common stock in
connection with a private
placement, net of issuance
costs of $1,071............ -- -- 3,810 4 10,353 -- -- -- -- 10,357
Issuance of common stock
in connection with
exercise of warrants and
stock options.............. -- -- 293 -- 1,392 -- -- -- -- 1,392
Preferred stock dividends ..... -- -- 2,010 2 (2,435) -- 2,301 -- -- (132)
Deferred compensation
related to stock options .. -- -- -- -- 4,659 -- -- (1,585) -- 3,074
----- --- ------ --- -------- --------- ------ ------- --- --------
BALANCE AT DECEMBER 31, 1999... 400 -- 25,457 26 146,863 (139,498) 5,134 (2,318) -- 10,207
Comprehensive loss:
Net loss................... -- -- -- -- -- (12,451) -- -- -- (12,451)
Unrealized investment gain. -- -- -- -- -- -- -- -- 95 95
---------
Total comprehensive loss... (12,356)
Issuance of common stock upon
conversion of convertible
preferred stock ........... (139) -- 14,486 15 (14) -- -- -- -- 1
Issuance of common stock in
connection with two
private placements, net
of issuance costs of
$2,548..................... -- -- 6,458 6 40,095 -- -- -- -- 40,101
Issuance of common stock
in connection with
exercise of warrants
and stock options.......... -- -- 3,345 3 3,254 -- -- -- -- 3,257
Issuance of common stock in
payment of preferred
stock dividends ........... -- -- 953 1 5,133 -- (5,134) -- -- --
Deferred compensation
related to stock options .. -- -- -- -- 7,368 -- -- 1,237 -- 8,605
Issuance of common stock in
connection with rights to
Relgen license agreement .. -- -- 10 -- 84 -- -- -- -- 84
Issuance of common stock in
connection with MBI asset
purchase .................. -- -- 376 -- 2,400 -- -- -- -- 2,400
Value of shares to be issued
related to license
agreement.................. -- -- -- -- 1,268 -- -- -- -- 1,268
----- --- ------- --- -------- --------- ------ ------- --- -------
BALANCE AT DECEMBER 31, 2000... 261 -- 51,085 51 206,451 (151,949) -- (1,081) 95 53,567
Comprehensive loss:
Net loss................... -- -- -- -- -- (46,713) -- -- -- (46,713)
Unrealized investment gain. -- -- -- -- -- -- -- -- (161) (161)
---------
Total comprehensive loss... (46,874)
Issuance of common stock upon
conversion of convertible
preferred stock ........... -- -- 2 -- -- -- -- -- -- --
Issuance of common stock in
connection with private
placement, net of issuance
costs of $502.............. -- -- 2,500 3 32,220 -- -- -- -- 32,223
Issuance of common stock
in connection with
exercise of warrants and
stock options.............. -- -- 12,245 12 8,309 -- -- -- -- 8,321
Issuance of common stock
as hiring bonus ........... -- -- 6 -- -- -- -- -- -- --
Issuance of common stock
related to license
agreement.................. -- -- 162 -- -- -- -- -- -- --
Deferred compensation
related to stock options .. -- -- -- -- 1,705 -- -- (632) -- 1,073
----- --- ------ --- -------- --------- ------ ------- --- --------
BALANCE AT DECEMBER 31, 2001... 261 $-- 66,000 $66 $248,685 $(198,662) $ -- $(1,713) $(66) $ 48,310
===== === ====== === ======== ========= ====== ======= === ========
See accompanying notes to consolidated financial statements.
32
GENTA INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
----------------------------------------
(Dollars in thousands) 2001 2000 1999
---------- --------- ---------
OPERATING ACTIVITIES:
Net loss .............................................................................. $(46,713) $(12,451) $ (7,444)
Items reflected in net loss not requiring cash:
Depreciation and amortization ..................................................... 1,131 581 525
Equity in net income of joint venture ............................................. -- (502) (2,448)
Gain on sale of discontinued operations ........................................... -- -- (1,607)
Loss on disposition of patents and equipment ...................................... 19 7 673
Promega settlement ................................................................ 1,000 -- --
Non-cash equity related compensation .............................................. 1,074 8,673 3,074
Changes in operating assets and liabilities:
Accounts and notes receivable ................................................ 102 (84) 352
Other assets ................................................................. (282) (288) 406
Accounts payable, accrued and other expenses ................................. 8,679 1,634 (790)
-------- -------- --------
Net cash used in operating activities ................................................. (34,990) (2,430) (7,259)
-------- -------- --------
INVESTING ACTIVITIES: ................................................................. --
Purchase of available-for-sale short-term investments ............................. (14,521) (33,375) (501)
Maturities of available-for-sale short-term investments ........................... 29,546 2,296 1,394
Purchase of property and equipment ................................................ (1,438) (778) (38)
Proceeds from sale of discontinued operations, net ................................ -- -- 4,371
Purchase of intangibles ........................................................... -- (400) (100)
Deposits and other ................................................................ (68) (167) 59
-------- -------- --------
Net cash provided by (used in) investing activities ................................... 13,519 (32,424) 5,185
-------- -------- --------
FINANCING ACTIVITIES: ................................................................. --
Proceeds from private placements of common stock, net ............................. 32,223 40,536 10,357
Proceeds from exercise of warrants and options .................................... 8,321 3,242 209
Proceeds from equipment conversion to lease ....................................... -- -- 51
-------- -------- --------
Net cash provided by financing activities ............................................. 40,544 43,778 10,617
-------- -------- --------
(Decrease) increase in cash and cash equivalents ...................................... 19,073 8,924 8,543
Less cash at liquidated foreign subsidiary ............................................ -- -- (8)
Cash and cash equivalents at beginning of year ........................................ 19,025 10,101 1,566
-------- -------- --------
Cash and cash equivalents at end of year .............................................. $ 38,098 $ 19,025 $ 10,101
======== ======== ========
See accompanying notes to consolidated financial statements.
33
GENTA INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
1. ORGANIZATION AND BUSINESS
Genta Incorporated ("Genta" of the "Company"). Genta is a
biopharmaceutical company engaged in pharmaceutical (drug) research and
development, its sole reportable segment. The Company is dedicated to
developing innovative drugs to treat cancer. In the past, the Company's
research efforts have focused primarily on the development of "antisense"
drugs, which are designed to selectively prevent the production of specific
proteins that contribute to the cause or progression of disease. More recently,
the Company has broadened its research portfolio into other "DNA medicines",
which, in addition to antisense drugs, consist of decoy aptamers and small
molecules, which include the Company's gallium products and androgenics
compounds.
The Company previously manufactured and marketed specialty biochemicals and
intermediate products through its manufacturing subsidiary, JBL Scientific, Inc.
("JBL"). Substantially all of the subsidiary's assets were sold in May 1999, and
accordingly, JBL is presented as a discontinued operation for the year ended
December 31, 1999 (Note 15). The Company also has a 50% equity interest in Genta
Jago Technologies B.V. ("Genta Jago"), a drug delivery system joint venture with
SkyePharma, PLC ("SkyePharma"). In March 1999, Genta and SkyePharma entered into
an interim agreement pursuant to which the parties to the joint venture released
each other from all liability relating to unpaid development costs and funding
obligations. Since the first quarter of 2000, there has been no activity within
the joint venture and we are currently seeking to terminate our involvement. In
August 1999, the Company acquired Androgenics Technologies, Inc.
("Androgenics"), which developed a proprietary series of compounds that act to
inhibit the growth of prostate cancer cells. In April 2000, the Company entered
into an asset purchase agreement with Relgen LLC, a privately held corporation
and a party related to Genta, in which the Company acquired all assets, rights
and technology to a portfolio of gallium containing compounds, including
Ganite(R).
The Company has had recurring operating losses since inception and
management expects that such losses will continue for the next several years.
Although no assurances can be expressed, management believes that at the current
rate of spending, the Company will have sufficient cash funds to maintain its
present operations into the first quarter of 2003.
The Company is also actively seeking collaborative agreements, equity
financing and other financing arrangements with potential corporate partners and
other sources. However, there can be no assurance that any such collaborative
agreements or other sources of funding will be available on favorable terms, if
at all. The Company will need substantial additional funds before it can expect
to realize significant product revenue.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements are presented on the basis of
generally accepted accounting principles recognized in the United States. All
professional accounting standards that are effective as of December 31, 2001
have been considered in preparing the consolidated financial statements. Such
financial statements include the accounts of the Company and all majority-owned
subsidiaries. All material intercompany transactions and balances have been
eliminated in consolidation. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make certain estimates and assumptions that affect reported earnings, financial
position and various disclosures. Actual results could differ from those
estimates.
34
Revenue Recognition
In 2001 and 2000, the Company entered into worldwide non-exclusive license
agreements. The license agreements each have initial terms which expire in 2010
and include upfront payments in cash, annual licensing fee payments for two
years, and future royalties on product sales. The Company's policy is to
recognize revenues under these arrangements when delivery has occurred or
services have been rendered, persuasive evidence of an arrangement exists, the
fee has been determined to be fixed and determinable and collectibility is
reasonably assured. Since each of the aforementioned licensing arrangements have
variable payment terms extending beyond one year, such fees are recognized as
earned.
Research and Development
Research and development costs are expensed as incurred, including raw
material costs required to manufacture drug products for clinical trials.
Cash, Cash Equivalents and Short-Term Investments
Cash and cash equivalents consisted entirely of money market funds. The
carrying amounts of cash, cash equivalents and short-term investments
approximate fair value due to the short-term nature of these instruments.
Marketable short-term investments consisted primarily of corporate notes, all of
which are classified as available-for-sale marketable securities. Management
determines the appropriate classification of debt and equity securities at the
time of purchase and reassesses the classification at each reporting date. The
Company invests its excess cash primarily in debt instruments of domestic
corporations with "AA" or greater credit ratings as defined by Standard & Poors.
The Company has established guidelines relative to diversification and
maturities that attempt to maintain safety and liquidity. These guidelines are
periodically reviewed and modified to take advantage of trends in yields and
interest rates.
Property and Equipment
Property and equipment is stated at cost and depreciated on the
straight-line method over the estimated useful lives of the assets, ranging from
three to five years. Leasehold improvements incurred in the renovation of the
Company's current offices are being amortized over the remaining life of the
leases. The Company's policy is to evaluate the appropriateness of the carrying
value of the undepreciated value of long-lived assets on the basis of estimated
future cash flows (undiscounted) and other factors. If such evaluation were to
indicate an impairment of these intangible assets, such impairment would be
recognized by a write-down of the applicable assets.
Intangible Assets
Intangible assets, consisting primarily of licensed technology and
capitalized patent costs, are amortized using the straight-line method over
their estimated useful lives of five years. The Company's policy is to evaluate
the appropriateness of the carrying values of the unamortized balances of
intangible assets on the basis of estimated future cash flows (undiscounted) and
other factors. If such evaluation were to indicate an impairment of these
assets, such impairment would be recognized by a write-down of the applicable
assets. The Company evaluates, each financial reporting period, the continuing
value of patents and patent applications. Through this evaluation, the Company
may elect to continue to maintain these patents, seek to out-license them, or
abandon them.
Income Taxes
The Company uses the liability method of accounting for income taxes.
Deferred income taxes are determined based on the estimated future tax effects
of differences between the financial statement and tax bases of assets and
liabilities given the provisions of the enacted tax laws.
The Company may record valuation allowances against net deferred tax
assets, if based upon the available evidence, it is more likely than not that
some or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income and when temporary differences become deductible. The Company
considers, among other available information, uncertainties surrounding the
recoverability of deferred tax assets, scheduled reversals of deferred tax
liabilities, projected future taxable income, and other matters in making this
assessment.
35
Stock Options
The Company has elected to follow Accounting Principles Board Opinion
("APB") No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its employee stock options as provided for
under SFAS No. 123, "Accounting for Stock-Based Compensation," including pro
forma disclosures.
Stock option grants and similar equity instruments granted to non-employees
are accounted for under the fair value method provided for in SFAS No. 123 and
Emerging Issues Task Force ("EITF"), 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."
Net Loss Per Common Share
Basic earnings per share are based upon the weighted-average number of
shares outstanding during the period. Diluted earnings per share includes the
weighted average number of all potentially dilutive common shares such as shares
outstanding, options, warrants and convertible preferred stock outstanding.
Net loss per common share for the three years ended December 31, 2001 is
based on the weighted average number of shares of common stock outstanding
during the periods. Basic and diluted loss per share are identical for all
periods presented as potentially dilutive securities, including options,
warrants and convertible preferred stock aggregating 17.2 million, 28.3 million
and 45.1 million in 2001, 2000 and 1999, respectively, have been excluded in the
calculation of the diluted net loss per common share because the inclusion of
such securities would be antidilutive. Net loss per common share is based on
net loss adjusted for imputed and accrued dividends on preferred stock.
Recently Issued Accounting Standards
In October 2001, the FASB issued Statement of Financial Accounting
Standards 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of
Long-Lived Assets". SFAS 144 requires that one accounting model be used for
long-lived assets to be disposed of by sale whether previously held and used or
newly acquired, and by broadening the presentation of discontinued operations to
include more disposal transactions. SFAS 144 will be effective for fiscal years
beginning after December 15, 2001. The adoption of SFAS 144 as of the effective
date did not have a material effect on the Company's financial position or
results of operations.
In August 2001, the FASB issued Statement of Financial Accounting Standards
143 ("SFAS 143"), "Accounting for Asset Retirement Obligations". SFAS 143
requires that the liability for an asset retirement obligation should be
recognized at its fair market value when these liabilities are incurred. SFAS
143 will be effective for fiscal years beginning after June 15, 2002 and the
Company intends to adopt the provisions of SFAS 143 as of the effective date but
does not expect SFAS 143 to have a material effect on the Company's financial
position or results of operations.
In July 2001, the Financial Accounting Standards Board issued SFAS 142,
"Goodwill and Other Intangible Assets". SFAS 142 requires periodic evaluation of
goodwill and indefinite lived intangible assets for impairment and discontinues
amortization of such intangibles. SFAS 142 will be effective for fiscal years
beginning after December 15, 2001. The adoption of SFAS 142 as of the effective
date did not have a material impact on the Company's financial position or
results of operations.
In June 2001, the Financial Accounting Standards Board approved for
issuance Statement of Financial Accounting Standards 141 (SFAS 141), "Business
Combinations". This standard eliminated the pooling method of accounting for
36
business combinations initiated after June 30, 2001. The Company has adopted the
provisions of SFAS 141 as of the effective date but does not expect SFAS 141 to
have a material effect on the Company's financial position or results of
operations.
3. SHORT-TERM INVESTMENTS
The carrying amounts of short-term investments approximate fair value due
to the short-term nature of these instruments. The fair value of
available-for-sale marketable securities is as follows ($ thousands):
DECEMBER 31, 2001
Amortized Unrealized Unrealized Estimated
costs gains losses fair value
-----------------------------------------------------
Corporate debt securities...................... $16,054 $23 $(89) $15,988
======= === ===== =======
DECEMBER 31, 2000
Corporate debt securities...................... $31,079 $ 31 $ - $31,110
Equity securities.............................. - 64 - 64
-----------------------------------------------------
$31,079 $95 $ - $31,174
======= === === =======
The fair value of corporate debt securities by contractual maturity, is as
follows ($ thousands):
DECEMBER 31,
--------------------------
2001 2000
---------- ----------
Due in one year or less.................................. $15,988 $18,900
Due after one year....................................... - 12,274
------- -------
$15,988 $31,174
------- =======
The estimated fair value of each marketable security has been compared to
its cost, and therefore, an unrealized loss of approximately $.066 million has
been recognized in accumulated other comprehensive loss at December 31, 2001.
4. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following ($ thousands):
DECEMBER 31,
ESTIMATED -------------------------
USEFUL LIVES 2001 2000
------------ ----------- ---------
Computer equipment.................................. 3 $ 599 $124
Software............................................ 3 256 26
Leasehold improvements.............................. 5 523 385
Equipment........................................... 5 74 -
Furniture and fixtures.............................. 5 764 292
----- ----
2,216 827
Less accumulated depreciation and amortization...... (368) (69)
----- ----
$1,848 $758
====== ====
5. NOTES RECEIVABLE
In May 1999, the Company accepted a $1.2 million 7% promissory note (the
"JBL Note") from Promega as partial consideration for the JBL Agreement (Note
15). The principal of the note plus accrued interest was due as follows: $.700
million on June 30, 2000 and $.500 million on the later of June 30, 2000 or the
Environmental Compliance Date as defined in the JBL Agreement. Accrued interest
due the Company was $.138 million at December 31, 2000. During the first quarter
of 2001, the Company agreed to resolve the matter with Promega, and, in
connection therewith, agreed to restructure its $1.2 million promissory note
receivable to provide for a $.2 million non-interest bearing note due upon final
resolution of certain environmental issues related to JBL and forgive all
accrued interest. The transaction resulted in a non-recurring charge of $1.0
million for the quarter ended March 31, 2001.
37
6. GENTA JAGO JOINT VENTURE
Genta Jago Technologies B.V. ("Genta Jago") is a joint venture formed by
Skyepharma PLC and Genta. On March 4, 1999, SkyePharma PLC (on behalf of itself
and its affiliates) entered into an interim agreement with Genta (the "Interim
JV Agreement") pursuant to which the parties to the joint venture released each
other from all liability relating to unpaid development costs and funding
obligations of Genta Jago. Under the terms of the Interim JV Agreement,
SkyePharma PLC assumed responsibility for substantially all the obligations of
the joint venture to third parties as well as further development of the product
line. Pursuant to the terms of the agreement, earnings of the joint venture are
to be allocated equally between the two parties. Accordingly, Genta recognized
$.502 million and $2.448 million as its equity in net income of the joint
venture in 2000 and 1999, respectively. Since the first quarter of 2000, there
have been no earnings or losses of the joint venture to be allocated between the
two parties.
YEAR ENDED
(In thousands) DECEMBER 31, 1999
-----------------
STATEMENTS OF OPERATIONS DATA:
Collaborative research and development revenues........... $ 1,000
Costs and expenses........................................ 473
-------
Income for operations..................................... 527
Extraordinary items - extinguishment of debt.............. 21,229
-------
Net (loss)/income......................................... $21,756
=======
Financial statements of the joint venture for the year ended December 31,
2001 and 2000 were not available.
7. INTANGIBLES
Intangible assets consist of the following ($ thousands):
DECEMBER 31,
-------------------
2001 2000
------- -------
Patent and patent applications ................ $ 3,905 $ 3,952
Other amortizable costs ....................... 87 87
------- -------
3,992 4,039
Less accumulated amortization ................. (1,872) (1,116)
------- -------
$ 2,120 $ 2,923
======= =======
In May 2000, the Company entered into a worldwide licensing arrangement
with Molecular Biosystems, Inc. ("MBI"), for a broad portfolio of antisense
patents and technologies for therapeutic and diagnostic applications. The
arrangement includes grants of both exclusive and non-exclusive license rights
to Genta on a royalty-free basis in return for cash and common stock. The
Company has recorded the fair value of the consideration paid as intangible
assets, which assets are being amortized over five years.
In April 2000, the Company entered into an asset purchase agreement with
Relgen LLC, a privately held corporation and a related party of Genta, in which
the Company acquired all assets, rights and technology to a portfolio of gallium
containing compounds, in exchange for common stock valued at $.084 million. The
consideration paid was recorded as an intangible asset and is being amortized
over five years.
The Company wrote-off $.361 million of fully amortized patents for the year
ended December 31, 2000.
8. PREPAID ROYALTIES
In December 2000, the Company recorded $1.268 million as the fair value for
its commitment to issue 162,338 shares of common stock to a major university as
consideration for an amendment to a license agreement initially executed on
August 1, 1991 related to antisense technology licensed from the university.
The amendment provided for a reduction in the royalty percentage rate to be paid
to the university based on the volume of sales of the Company's products
containing the antisense technology licensed from such university. These shares
were issued in the first quarter of 2001. These shares were issued in the first
quarter of 2001. The Company will amortize the prepaid royalties upon the
commercialization of Genasense(TM), the Company's leading antisense drug,
through the term of the arrangement, which expires twelve years from the date of
first commercial sale.
9. ACCRUED EXPENSES
Accrued expenses is comprised of the following ($ thousands):
DECEMBER 31,
-----------------
2001 2000
------ ------
Accrued expenses relating to clinical trials.... $ 792 $ 834
Accrued placement agent commission.............. - 549
Accrued compensation............................ 822 225
Accrued costs relating to new offices........... - 195
Other accrued costs............................. 695 650
------ ------
$2,309 $2,453
====== ======
10. INCOME TAXES
Significant components of the Company's deferred tax assets as of December
31, 2001 and 2000 and related valuation reserves are presented below
($ thousands):
DECEMBER 31,
---------------------
2001 2000
-------- --------
DEFERRED TAX ASSETS:
Deferred compensation............................ $ 5,292 $ 4,834
Net operating loss carryforwards................. 3,414 30,725
Research and development credits................. 5,554 3,359
Purchased technology and license fees............ 4,519 4,503
Depreciation, net................................ 18 -
Other, net....................................... 246 275
-------- --------
69,043 43,696
Valuation allowance for deferred tax assets...... (68,999) (43,553)
-------- --------
Net deferred tax assets.................... 44 143
DEFERRED TAX LIABILITIES:
Patent expenses.................................. (44) (134)
Depreciation, net................................ - (9)
-------- --------
(44) (143)
-------- --------
Net deferred tax assets (liabilities)..... $ - $ -
======== ========
A full valuation allowance has been provided at December 31, 2001 and 2000
to reserve for deferred tax assets, as it appears more likely than not that net
deferred tax assets will not be realized.
At December 31, 2001, the Company has federal and state net operating loss
carryforwards of approximately $142.0 million and $59.5 million, respectively.
The difference between the federal and state tax loss carryforwards is primarily
attributable to the fact that the Company relocated from California to
Massachusetts in 1998, and from Massachusetts to New Jersey in 2000. Net
operating losses for state income tax purposes, previously generated in
California and Massachusetts, cannot be utilized in New Jersey. The federal tax
loss carryforwards will begin expiring in 2003, unless previously utilized. The
Company also has federal research and development tax credit carryforwards of
$5.5 million, which will begin expiring in 2003, unless previously utilized.
Federal and New Jersey tax laws limit the utilization of income tax net
operating loss and credit carryforwards that arise prior to certain cumulative
changes in a corporation's ownership resulting in a change of control of the
Company. The future annual utilization of net operating loss carryforwards and
research and development tax credits will be limited due to such ownership
changes.
11. OPERATING LEASES
At December 31, 2001 and 2000, the Company maintained $.365 and $.247
million, respectively, in restricted cash balances with a financial institution
related to lease obligations on its corporate facilities. Such restricted cash
balances collateralize letters of credit issued by the financial institution in
favor of the Company's landlord with respect to corporate facilities.
38
Future minimum obligations under operating leases at December 31, 2001 are
as follows ($ thousands):
OPERATING
LEASES
---------
2002.......................................... $ 589
2003.......................................... 694
2004.......................................... 432
2005.......................................... 322
2006.......................................... 15
------
Thereafter.................................... -
------
Total................................ $2,052
======
12. STOCKHOLDERS' EQUITY
Common Stock
In March 1999, the Company agreed to grant 50,000 shares of common stock to
Georgetown University (the "University") as consideration for services to be
performed pursuant to a clinical trials agreement. (the "Agreement"). According
to the terms of the Agreement, the University was to perform studies of the
Company's leading antisense drug, Genasense(TM), on 24 patients, commencing in
April 1999. Pursuant to the terms of the agreement, Genta would issue 25,000 of
the shares to the University upon the completion of the first 12 patient
studies, with the remaining shares to be issued upon the completion of the
remaining patients. During 2000, the first 12 patient studies were completed.
Accordingly, the estimated fair value of these shares of $.363 million, which
was included as a charge to non-cash equity related compensation in the amounts
of $.215 million and $.148 million in 2000 and 1999, respectively.
In August 1999, the Company acquired Androgenics Technologies, Inc.
("Androgenics"), a wholly owned entity of the Company's majority stockholder.
Androgenics is a company with license rights to a series of compounds invented
at the University of Maryland, Baltimore to treat prostate cancer. As
consideration for the acquisition, the Company paid $.132 million in cash
(including reimbursements of pre-closing expenses and on-going research funding)
and issued warrants (with exercise prices ranging from $1.25 to $2.50 per share)
to purchase an aggregate of 1,000,000 shares of common stock, 90% of which will
not become exercisable until the successful conclusion of certain development
milestones, ranging from the initial clinical patient trial through the
submission of an application for marketing authorization. As of December 31,
2001, the above-mentioned milestones have not been met.
In August 1999, the Company settled lawsuits with Johns Hopkins University
("Johns Hopkins") and Drs. Paul Ts'o and Paul Miller ("Ts'o/Miller Partnership")
for $.380 million. As part of the settlement of claims, the Company paid $.180
million in cash and issued 69,734 shares of common stock to Johns Hopkins,
acting on its behalf and on behalf of Ts'o/Miller Partnership. A broker sold the
stock under an agreement between the Company and Johns Hopkins, with the
proceeds from such sales delivered to Johns Hopkins.
In December 1999, the Company received net proceeds of approximately $10.4
million through the private placement of 114 units (the "1999 Private
Placement"). Each unit sold in the 1999 Private Placement consisted of (i)
33,333 shares of common stock, par value $.001 per share ("common stock"), and
(ii) warrants to purchase 8,333 shares of the Company's common stock at any time
prior to the fifth anniversary of the final closing (the "Warrants"). The
Warrants are convertible at the option of the holder into shares of common stock
at an initial conversion rate equal to $4.83 per share, subject to antidilution
adjustment. There were a total of 3.809 million shares of common stock, and
952,388 warrants issued in connection with the 1999 Private Placement. The
placement agent, a related party, received cash commissions equal to 7.5% of the
gross sales price, reimbursable expenses up to $.125 million and warrants (the
"Placement Warrants") to purchase up to 10% of the units sold in the private
placement for 110% of the offering price per Unit. During 2000, 57,147 penalty
warrants were issued to the 1999 private placement investors as a result of an
SEC registration statement not becoming effective within the prescribed 120 day
period after closing.
In January 2000, the Board of Directors approved an amendment to increase
the authorized common stock to 95,000,000 shares from 65,000,000. In May 2000,
shareholders approved this amendment at the annual meeting of stockholders.
In April 2000, the Company entered into an asset purchase agreement with a
privately held corporation and a party related of Genta, in which the Company
acquired all assets, rights and technology to a portfolio of gallium containing
compounds, known as Ganite(R), in exchange for common stock valued at $.084
million. These compounds are used to treat cancer-related hypercalcemia.
In May 2000, the Company entered into a worldwide licensing arrangement for
a broad portfolio of patents and technologies that relate to antisense for
therapeutic and diagnostic applications. The arrangement includes grants of both
exclusive and non-exclusive rights from the licensor to Genta on a royalty-free
basis in return for cash and shares of common stock.
In September 2000, the Company sold 2.163 million shares of common stock
through a private placement and received net proceeds of approximately $13.7
million, net of placement costs. The placement agent received cash commissions
equal to 7.0% of the gross sales price. In connection with the financing,
135,639 warrants valued at $.867 million were issued to the placement agent. In
addition, 20,641 penalty warrants were subsequently issued as a result of
untimely filing of an SEC registration statement within the prescribed 30 day
period after closing.
In November 2000, the Company sold 4.285 million shares of common stock
through a private placement and received net proceeds of approximately $26.8
million, net of placement costs. The placement agents, one a related party
shareholder, received cash commissions equal to 7.0% of the gross sales price.
In December 2000, the Company recorded $1.268 million as the fair value for
its commitment to issue 162,338 shares of common stock to a major university as
consideration for an amendment to a license agreement initially executed on
August 1, 1991, concerning antisense technology licensed by such university. The
amendment provided for a reduction in the royalty percentage rate to be paid to
the university based on the volume of sales of the Company's products containing
the antisense technology licensed from such university. These shares were issued
in the first quarter of 2001.
In November 2001, the Company sold 2.5 million shares of common stock
through a private placement and received net proceeds of approximately $32.2
million, net of placement agent commissions of $.420 million and related
expenses.
Preferred Stock
The Company has authorized 5,000,000 shares of preferred stock and has
issued and outstanding 261,000 shares of Series A Convertible Preferred Stock as
of December 31, 2001. In 1999, the Board of Directors of the Company and certain
holders of common stock, Series A and D preferred stock approved, in accordance
with Delaware law, an amendment to the Company's Restated Certificate of
Incorporation to remove the "Fundamental Change" redemption right. The Company
has formally amended its Restated Certificate of Incorporation after the
expiration
39
of the 20-day period provided for in Rule 14c-5 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
Series A Preferred Stock
Each share of Series A Preferred Stock is immediately convertible, into
shares of the Company's common stock, at a rate determined by dividing the
aggregate liquidation preference of the Series A Preferred Stock by the
conversion price. The conversion price is subject to adjustment for
antidilution. As of December 31, 2001 and 2000, each share of Series A Preferred
Stock was convertible into 7.1573 and 7.3967 shares of common stock,
respectively.
Terms of the Company's Series A Preferred Stock required the payment of
annual dividends as follows: $3 per share for the first year, $4 per share in
the second year, and $5 per share in the third and fourth years, payable in cash
or in shares of common stock converted at fair market value at the option of the
Company's Board of Directors. Dividends were paid in common stock in September
1996, for the first and second year, pursuant to these terms. During 1999, the
Company issued 1,085,420 shares of common stock to Series A Preferred
Stockholders in payment of accrued dividends for the third and fourth year.
There are no further dividend requirements after September 30, 1998.
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.
Series D Preferred Stock
In June 1997, the Company received gross proceeds of approximately $16.2
million (approximately $14.0 million net of placement costs) through the private
placement of 161.58 Premium Preferred Units(TM). Each unit sold in the private
placement consisted of (i) 1,000 shares of Premium Preferred Stock(TM), par
value $.001 per share, stated value $100 per share (the "Series D Preferred
Stock"), and (ii) warrants to purchase 5,000 shares of the Company's common
stock, (the "Class D Warrants") at any time prior to the fifth anniversary of
the final closing (the "Class D Warrants").
In May 1998, the Company requested, and subsequently received, consents
(the "Letter Agreements") from the holders of a majority of the Series D
Preferred Stock to waive the Company's obligation to use best efforts to obtain
the effectiveness of a registration statement with the SEC as to common stock
issuable upon conversion of Series D Preferred Stock and exercise of Class D
Warrants. In exchange, the Company agreed to waive the contractual "lock-up"
provisions to which such consenting holders were subject and which provisions
would have prevented the sale of up to 75% of their securities for a nine-month
period following the effectiveness of the registration statement. The Company
also agreed to extend the Reset Date referred to in the Certificate of
Designation of the Series D Preferred Stock to January 29, 1999 from June 29,
1998. In addition, through the Letter Agreements, the Company agreed to issue to
such holder's warrants to purchase at $0.94375 per share, an aggregate of up to
807,900 shares of common stock, subject to certain anti-dilution adjustments,
exercisable until June 29, 2002. The Company had conditioned the effectiveness
of such consent on its acceptance by a majority of the Series D Preferred
Stockholders.
In March 2000, the Board of Directors approved the mandatory conversion of
all Series D Convertible Preferred Stock, par value $.001 per share ("Series D
Preferred Stock"), and the mandatory redemption of all outstanding Class D
Warrants. As a result of the conversion of the Series D Preferred Stock, the
Company issued approximately 14.4 million shares of common stock. The Company
realized approximately $1.4 million from the exercise of the Class D Warrants
and issued 2.0 million shares of common stock. The Company intends to redeem the
remaining 155,640 Class D Warrants at $0.10 per warrant for approximately $.016
million. No dividends have been accrued after January 29, 2000 due to the
mandatory conversion of the Series D Preferred Stock.
40
Subsequent to the Reset Date of January 29, 1999, Series D Preferred Stock
earned dividends, payable in shares of the Company's common stock, at the rate
of 10% per annum, based on a stated value of $140 per share. In calculating the
number of shares of common stock to be paid with respect to each dividend, each
share of common stock was deemed to have the value of the Conversion Price at
the time such dividend was paid. The Company was restricted from paying cash
dividends on common stock until such time as cumulative dividends on outstanding
shares of Series D Preferred Stock were paid. Additionally, the Company could
not declare a dividend to its common stockholders until such time that a special
dividend of $140 per share was paid on the Series D Preferred Stock. The Company
issued 953,000 and 924,519 shares of common stock as payment of dividends in
2000 and 1999, respectively. Accordingly, the Company provided dividends for
$5.1 million and $2.3 million for the years ended December 31, 2000 and 1999,
respectively, based on the fair value of the common stock. As a result of the
Mandatory Conversion of Series D Preferred Stock in June 2000, no further
dividends were paid or accrued.
In connection with certain warrants issued in 1998 related to Series D
Preferred Stock, the Company was contingently liable for $.150 million in
commissions upon the exercise of the warrants, which were exercised in
September 2001, resulting in commissions expense of $.150 million.
Warrants
Summary information with respect to outstanding common stock warrants at
December 31, 2001 is presented below:
POTENTIAL
EXERCISE WARRANT COMMON EXPIRATION
PRICE EXERCISE PROCEEDS EQUIVALENTS DATE
-------- ----------------- ----------- -------------
JUNE 1997 PRIVATE PLACEMENT (SERIES D):
Placement & Advisory Warrants................. $0.86465 - $1.10 $3,041,535 3,359,387 June 2007
ANDROGENICS WARRANTS (AUGUST 1999):
Vested December 30, 1999...................... $1.25 121,875 97,500 August 2006
Vest upon achievement of various milestones... $1.50 - $2.50 1,787,500 900,000 August 2004
DECEMBER 1999 PRIVATE PLACEMENT (COMMON):
Related Party Warrants:
Common Stock................................ $3.30 1,095,897 332,090 December 2004
Warrants.................................... $5.31 440,857 83,024 December 2004
Funding Warrants.............................. $4.69716 3,115,796 660,094 December 2004
Penalty Warrants (May 2000)................... $4.69716 235,587 49,910 May 2005
SEPTEMBER 2000 PRIVATE PLACEMENT (COMMON):
Penalty Warrants.............................. $6.75 97,193 14,399 September 2005
Placement Agent Warrants...................... $7.1500 760,839 106,411 September 2005
Placement Agent Warrants...................... $7.4250 323,812 43,611 September 2005
NOVEMBER 2000 PRIVATE PLACEMENT (COMMON):
Placement Agent Warrants...................... $7.4250 480,509 64,715 September 2005
----------- ---------
$11,501,400 5,711,141
=========== =========
In February 1997, the Company issued warrants to purchase 6.4 million
shares of common stock at $0.471875 per share (subject to antidilution
adjustments of 1.7 million shares) in connection with $3.0 million of
convertible notes issued. Such warrants were exercised for $3.0 million in
September 2001.
In June 1997, in connection with the issuance of the Premium Preferred
Units, the placement agent received warrants (the "Placement Warrants") to
purchase up to 10% of the Units sold in the Private Placement for 110% of the
offering price per Unit. Furthermore, the Company had entered into a financial
advisory agreement with the placement agent pursuant to which the financial
advisor received certain cash fees and has received warrants (the "Advisory
Warrants") to purchase up to 15% of the Units sold in the Private Placement for
110% of the offering price per Unit. This financial advisory agreement
terminated in June 1999. As of December 31, 2001, 174,272 and 239,242 have been
exercised in 2001 and 2000, respectively. The Placement Warrants and the
Advisory Warrants expire on June 29, 2007.
On August 6, 1999, as consideration for management consulting services, the
Company issued warrants to purchase 105,000 shares of common stock, at prices
ranging from $1.62 to $2.25 per share. The fair market value of these warrants,
aggregating $.200 million, was charged to non-cash equity related compensation
in 1999. As of December 31, 2000, all of these warrants have been exercised.
On August 30 1999, the Company acquired Androgenics Technologies, Inc.
("Androgenics"), a wholly owned entity of a related party shareholder. As
consideration for the acquisition, the Company paid $.132 million in cash
(including reimbursements of pre-closing expenses and on-going research funding)
and issued warrants (with exercise prices ranging from $1.25 to $2.50 per share)
to purchase an aggregate of 1,000,000 shares of common stock, 90% of which will
not become exercisable until the successful conclusion of certain development
milestones, ranging from the initial clinical patient trial through the
submission of an application for marketing authorization. The acquisition was
accounted for as a transfer of interest between companies under common control.
The cash and warrants were issued in exchange for 100% of the shares of
Androgenics and licensed technology and the assumption of a research and
development agreement with the University of Maryland at Baltimore. The
1,000,000 warrants were accounted for as a deemed distribution based on their
fair value of $.441 million. At December 31, 2001, none of the above-mentioned
milestones have been met.
41
On November 5, 1999, the Company issued 550,000 Bridge Warrants to the
Aries Funds in full settlement of the Company's obligation under a 1997 note and
warrant purchase agreement. The settlement of this obligation was accounted for
as a capital distribution, since the Aries Funds are a shareholder of the
Company. Accordingly, these warrants were accounted for at their fair value of
$1.8 million and included in accrued dividends at December 31, 1999. In
September 2001, these warrants were exercised for $.204 million.
In December 1999, as described above, in connection with the 1999 Private
Placement, the placement agent, a related party shareholder, received warrants
(the "Related Party Warrants") to purchase up to 10% of the Units sold in the
Private Placement for 110% of the offering price per Unit. The Related Party
Warrants expire on December 23, 2004. The Related Party Warrants have a fair
value at the time of their issuance approximating $1.377 million, resulting in
no net effect to stockholders' equity. During 2001, also in connection with the
1999 Private Placement, 57,147 penalty warrants were issued, as a result of an
SEC registration statement not becoming effective within the prescribed 120 day
period after closing.
In September 2000, as discussed above, in connection with the September
2000 private equity placement, 135,639 warrants were issued to the placement
agent. The value of such warrants of $.867 million was considered part of the
cost of the placement. In addition, 20,641 penalty warrants were issued as a
result of an untimely filing of an SEC registration statement within the
prescribed 30 day period after closing.
On March 27, 2000, as discussed above, the Board of Directors approved the
mandatory redemption of all outstanding Series D Preferred Stock and Class D
Warrants.
Common Stock Reserved
At December 31, 2001, an aggregate of 17,170,297 shares of common stock
were reserved for the conversion of preferred stock and the exercise of
outstanding options and warrants.
42
13. EMPLOYEE BENEFIT PLANS
1991 Plan
The Company's 1991 Stock Plan as amended (the "Plan") provides for the sale
of stock and the grant of stock options to employees, directors, consultants and
advisors of the Company. Options may be designated as incentive stock options or
non-statutory stock options; however, incentive stock options may be granted
only to employees of the Company. Options under the Plan have a term of up to 10
years and must be granted at not less than the fair market value or 85% of fair
market value for non-statutory options, on the date of grant. Common stock sold
and options granted pursuant to the Plan generally vest over a period of four to
five years.
Grants to Employees and Directors- 1991 Plan
In 1998, the Company granted 100,000 non-statutory options with an exercise
price below the market value of the Company's stock on the grant date. The
Company recorded a charge to stockholders' equity (hereinafter referred to as
"deferrred compansation") of $.132 million attributable to the intrinsic value
of the options and amortized $.101 million and $.031 million as non-equity
related compensation expense in 1999 and 1998, respectively.
Summary information with respect to the Company's 1991 Stock Plan is as
follows:
WEIGHTED
AVERAGE
SHARES UNDER EXERCISE PRICE
1991 PLAN OPTION PER SHARE
--------- ------------ --------------
BALANCE AT DECEMBER 31, 1998 ............... 134,238 $ 6.85
Granted .................................. -- --
Exercised ................................ -- --
Canceled ................................. (26,670) 17.55
-------- ------
BALANCE AT DECEMBER 31, 1999 ............... 107,568 4.20
Granted .................................. -- --
Exercised ................................ -- --
Canceled ................................. (180) 20.21
-------- ------
BALANCE AT DECEMBER 31, 2000 ............... 107,388 4.18
Granted .................................. -- --
Exercised ................................ (100,000) 3.00
Canceled ................................. (3,000) 16.67
-------- ------
BALANCE AT DECEMBER 31, 2001 ............... 4,388 $22.41
======== ======
At December 31, 2001, all of these outstanding stock options were
exercisable. There are no shares of common stock available for grant or sale
under the 1991 Stock Plan, as it expired in 2001.
1998 Plan
Pursuant to the Company's 1998 Stock Plan as amended (the "1998 Plan"),
12,100,000 shares have been provided for the grant of stock options to
employees, directors, consultants and advisors of the Company. Options may be
designated as incentive stock options or non-statutory stock options; however,
incentive stock options may be granted only to employees of the Company. Options
under the 1998 Plan have a term of up to 10 years and must be granted at not
less than the fair market value, or 85% of fair market value for non-statutory
options, on the date of the grant. Common stock sold and options granted
pursuant to the 1998 Plan generally vest over a period of four years.
43
Grants to Employees and Directors- 1998 Plan
In May 1998, the Company granted options to purchase 2,236,263 shares of
the Company's common stock to the Company's Chief Executive Officer ("CEO"),
subject to shareholder approval, which was received in July 1998. As a result of
an increase in the Company's stock price between May and July 1998, the Company
recorded deferred compensation of $.475 million attributable to these options,
and amortized $.405 million and $.070 million as non-cash equity related
compensation expense in 1999 and 1998, respectively.
During the fourth quarter of 1999, the Company's CEO resigned and pursuant
to the terms of his original stock option grant, was subject to forfeiture of
his unvested stock options. In connection with a severance agreement, the
Company modified the original stock option agreement and allowed 500,000
unvested stock options to continue to vest over the subsequent year. As a
result, the Company recorded net non-cash equity related compensation expense of
$.713 million in 1999 related to this matter.
During 1999, the Company granted to certain key employees, including the
new CEO and the Chairman of the Board, a total of 6,188,250 options with
exercise prices below the market value of the Company's common stock on the date
of grant. The Company recorded total deferred compensation of $2.018 million
attributable to the intrinsic value of these options, and amortized $.417
million, $.519 million and $.496 million as non-cash equity related compensation
expense in 2001, 2000 and 1999, respectively. In 2000, the Company recorded
additional deferred compensation of $.064 million for the remeasurement of the
new CEO's options, of which $.013 million and $.027 million was amortized as
non-cash equity related compensation expense in 2001 and 2000.
During 2000, the Company granted to certain employee a total of 5,000
options with an exercise price below the market value of the Company's common
stock on the date of grant. The Company recorded total deferred compensation of
$.032 million attributable to the intrinsic value of these options, which was
amortized as non-cash equity related compensation expense in 2000. In addition,
certain employees were granted a total of 320,000 options that had an exercise
price below the market value of the Company's common stock on the date of hire.
Accordingly, the Company recorded total deferred compensation of $.934 million
attributable to the intrinsic value of these options, and amortized $.293
million as non-cash equity related compensation expense in 2001.
The Company's employees were granted 1,392,300, 558,362 and 495,000 stock
options with an exercise prices equal to fair market value on the date of grant,
in 2001 and 2000, respectively.
Grants to Non-Employees - 1998 Plan
In connection with the JBL Agreement in May 1999 and pursuant to a related
lease termination agreement, the Company granted stock options to acquire
450,000 shares of common stock, to the owners of the building previously leased
to JBL, some of whom were also employees of JBL. Those options are accounted for
pursuant to guidelines in SFAS No. 123, using the Black-Scholes method and has
an approximate value of $1.0 million, which was charged against the gain on the
sale of JBL. In addition, a total of 245,500 options were granted to employees
of JBL upon the closing of the sale of JBL, in connection with an ongoing
service arrangement between Promega and the Company. These options were
accounted for pursuant to SFAS No. 123 using the Black-Scholes method. The
Company recorded $.529 million and $1.175 million of deferred
44
compensation relative to these JBL options in 2000 and 1999, respectively, and
amortized $.948 million and $.757 million as non-cash equity related
compensation expense in 2000 and 1999, respectively.
In 1999, the Company also granted 50,000 options to purchase common stock
to certain consultants and advisors to the Company, for which the Company
recorded a total of $.033 million and $.136 million in deferred compensation in
2000 and 1999, respectively, of which $.069 million and $.100 million was
amortized as non-cash equity related compensation expense in 2000 and 1999,
respectively, as accounted for pursuant to SFAS 123 and EITF 96-18.
In 2001, the Company also granted 50,000 options to purchase common stock to
members of Genta's Scientific Advisory Board, for which the Company recorded a
total of $3.049 million in deferred compensation, of which $.257 million was
amortized as non-cash equity related compensation expense.
Summary information with respect to the Company's 1998 Stock Plan is as
follows:
WEIGHTED
AVERAGE
SHARES UNDER EXERCISE PRICE
1998 PLAN OPTION PER SHARE
--------- ------------ --------------
BALANCE AT DECEMBER 31, 1998 ............... 2,836,263 $0.94
Granted .................................. 7,428,750 2.42
Exercised ................................ (44,000) 0.95
Canceled ................................. (618,131) 0.94
---------- -----
BALANCE AT DECEMBER 31, 1999 ............... 9,602,882 2.08
Granted .................................. 558,362 7.09
Exercised ................................ (461,067) 1.81
Canceled ................................. (3,750) 2.41
---------- -----
BALANCE AT DECEMBER 31, 2000 ............... 9,696,427 2.39
Granted .................................. 1,392,300 8.56
Exercised ................................ (2,363,983) 1.29
Canceled ................................. (429,500) 2.94
---------- -----
BALANCE AT DECEMBER 31, 2001 ............... 8,295,244 $3.71
========== =====
At December 31, 2001, options to purchase approximately 4,163,396 shares of
common stock were exercisable at a weighted average exercise price of
approximately $2.55 per share and 935,706 shares of common stock were available
for grant or sale under the Plan.
1998 Non-Employee Directors' Plan
Pursuant to the Company's Non-Employee Directors' 1998 Stock Plan as
amended (the "Directors' Plan"), 2,900,000 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. Each
director shall be granted 6,667 options for each Board of Directors meeting they
attend in person, with a maximum of 20,000 options granted to each director.
Each option granted shall become exercisable in full on the date of grant.
In May 1998, the Company granted stock options to purchase 1,725,000 shares
of common stock, subject to shareholder approval, which was received in July
1998. As a result of an increase in the stock price between May and July 1998,
the Company recorded deferred compensation of $.366 million, of which $.124
million and $.153 million was amortized as non-cash equity related compensation
expense in 2000 and 1999, respectively.
In March 2000, four members of the Company's Board of Directors resigned.
The Company accelerated the vesting of their outstanding options and extended
the exercise period for one year. As a result, the Company recognized $6.610
million in non-cash equity related compensation expense.
In March 2000, the Company granted to a Company Director, 25,000 options
with an exercise price below the market value of the Company's common stock on
the date of grant. The Company recorded total deferred
46
compensation of $.052 million attributable to the intrinsic value of these
options, of which $.001 million and $.051 million was amortized as non-cash
equity related compensation expense in 2001 and 2000, respectively.
The Company's directors were granted stock options to purchase a total
of 170,769, 450,000 and 350,000 shares of common stock in 2001, 2000 and 1999,
respectively, with an exercise price equal to the fair market value of the
common stock on the date of grant.
Summary information with respect to the Company's 1998 Non-Employee
Director's Plan is as follows:
WEIGHTED
AVERAGE
SHARES UNDER EXERCISE PRICE
1998 DIRECTORS' PLAN OPTION PER SHARE
-------------------- ------------ --------------
BALANCE AT DECEMBER 31, 1998................... 1,725,000 $ 0.94
Granted...................................... 350,000 2.88
Exercised.................................... -- --
Canceled..................................... -- --
--------- -----
BALANCE AT DECEMBER 31, 1999................... 2,075,000 1.26
Granted...................................... 450,000 8.37
Exercised.................................... (871,887) 1.17
Canceled..................................... (32,813) 0.94
--------- -----
BALANCE AT DECEMBER 31, 2000................... 1,620,300 3.30
Granted...................................... 170,769 10.70
Exercised.................................... (501,400) 1.33
Canceled..................................... -- --
--------- ------
BALANCE AT DECEMBER 31, 2001................... 1,289,669 $ 5.01
========= ======
At December 31, 2001, options granted under the Directors' Plan to purchase
approximately 1,216,669 shares of common stock were exercisable at a weighted
average exercise price of approximately $4.64 per share and 243,144 shares of
common stock were available for grant or sale under the Directors' Plan.
In 1999, a total of 7,778,750 options were granted pursuant to the 1998
Plan and the 1998 Directors Plan, of which 1,570,500 were granted at fair market
value with a weighted average grant date fair value of $1.37 per share, and
6,208,250 were granted below fair market value with a weighted average grant
date fair value of $1.87 per share. In 2000, a total of 1,008,362 options were
granted pursuant to the 1998 Plan and the 1998 Directors Plan, of which 928,362
were granted at fair market value with a weighted average grant date fair value
of $7.76 per share, and 80,000 were granted below fair market value with a
weighted average grant date fair value of 8.49 per share. In 2001, a total of
1,563,069 options were granted pursuant to the 1998 Plan and the 1998 Directors
Plan, of which 1,513,069 were granted at fair market value with a weighted
average grant date fair value of $8.53 per share, and 50,000 were granted below
fair market value with a weighted average grant date fair value of $6.64 per
share.
An analysis of all options outstanding as of December 31, 2001 is presented
below:
WEIGHTED
WEIGHTED AVERAGE
AVERAGE WEIGHTED EXERCISE
REMAINING AVERAGE PRICE
OPTIONS LIFE IN EXERCISE OPTIONS OF OPTIONS
RANGE OF PRICES OUTSTANDING YEARS PRICE EXERCISABLE EXERCISABLE
--------------- ----------- ----- ----- ----------- -----------
$ 0.88 - $ 0.94........................ 1,357,132 7.01 $ 0.93 1,294,632 $ 0.94
$ 2.03 - $ 3.25........................ 5,740,750 7.52 2.60 3,321,625 2.63
$ 5.63 - $ 9.90........................ 1,988,318 9.01 7.72 710,807 8.05
$10.20 - $17.50........................ 486,071 9.55 13.39 40,371 13.85
$20.63 - $25.00........................ 4,019 3.59 22.66 4,019 22.86
--------- ---- ------ --------- ------
9,576,290 9.66 $ 3.89 5,371,454 $ 6.94
========= ==== ====== ========= ======
Pro Forma Disclosure
Pro forma information regarding net loss is required by SFAS 123, and has
been determined as if the Company had accounted for its employee stock options
under the fair value method of that Statement. The fair value for these options
was estimated at the date of grant using the Black-Scholes method for option
pricing with the following weighted-average assumptions for 2001, 2000, and
1999: volatility factors of the expected market value of the
47
Company's common stock of 69%, 74% and 90% respectively; risk-free interest
rates of 4%; dividend yields of 0%; and a weighted-average expected life of the
options of four to five years.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
YEARS ENDED DECEMBER 31,
-----------------------------------------
($ thousands, except per share data) 2001 2000 1999
----------- --------- ----------
Pro forma net loss applicable to common shares............. $(52,190) $(20,595) $(21,833)
Pro forma net loss per share............................... $(0.93) $(0.53) $ (1.23)
The results above are not likely to be representative of the effects of
applying SFAS 123 on reported net income or loss for future years.
Employee Savings Plan
During 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, and contributed $.144 million as
the Company's matching contribution to the Plan for the year ended December 31,
2001.
14. COMMITMENTS AND CONTINGENCIES
LITIGATION AND POTENTIAL CLAIMS
JBL
In October 1996, JBL retained a chemical consulting firm (the "Consulting
Firm") to advise it with respect to an incident of soil and groundwater
contamination (the "Spill"). Sampling conducted at the JBL facility revealed the
presence of chloroform and perchloroethylenes ("PCEs") in the soil and
groundwater at this site. A semi-annual groundwater monitoring program is being
conducted, under the supervision of the California Regional Water Quality
Control Board, for purposes of determining whether the levels of chloroform and
PCEs have decreased over time. The results of the latest sampling conducted by
JBL show that PCEs and chloroform have decreased in all but one of the
monitoring sites. Based on an estimate provided to the Company by the Consulting
Firm, the Company accrued $.065 million in 1999, relating to remedial costs.
Prior to 1999, such costs were not estimable, and therefore no loss provisions
had been recorded. Pursuant to the JBL agreement the Company has agreed to
indemnify Promega in respect of this matter. In November 2001, the Company
received from the California Regional Water Quality Control Board notification
on the completion of site investigation and remedial action for these sites and
that no further action related to this case is required.
JBL received notice on October 16, 1998 from Region IX of the Environmental
Protection Agency ("EPA") that it had been identified as a potentially
responsible party ("PRP") at the Casmalia Disposal Site, which is located in
Santa Barbara, California. JBL has been designated as a de minimis PRP by the
EPA. Based on volume amounts from the EPA, the Company concluded that it was
probable that a liability had been incurred and accrued $.075 million during
1998. In 1999, the EPA estimated that the Company would be required to pay
approximately $.063 million to settle their potential liability. In December
2001, Genta received a revised settlement proposal from the EPA in the amount of
$.033 million, the terms of the settlement with the EPA containing standard
contribution protection and release language. In January 2002, the Company
accepted the proposal and settled this matter.
During May 2000, Promega notified Genta by letter of two claims against
Genta and Genta's subsidiary, Genko Scientific, Inc. (f/k/a JBL Scientific,
Inc.) ("Genko"), for indemnifiable damages in the aggregate amount of $2.820
million under the JBL Agreement. Promega's letter stated that it intended to
reduce to zero the principal amount of the $1.2 million promissory note it
issued as partial payment for the assets of Genko (which note provided for a
payment of $.700 million on June 30, 2000) and that therefore Genta owed Promega
approximately $1.6 million. On October 16, 2000 Genta filed suit in the US
District Court of California against Promega for the non-payment of the $1.2
million note plus interest. On November 6, 2000, Promega filed a counter suit
against the Company with the US District Court of California. During the first
quarter of 2001, the Company agreed to resolve the matter with Promega, and, in
47
connection therewith, agreed to restructure its $1.2 million promissory note
receivable to provide for a $.2 million non-interest bearing note due to be
repaid by Promega upon final resolution of certain environmental issues related
to JBL as more fully discussed in Note 15, and forgive all accrued interest. The
transaction resulted in a non-recurring charge of $1.0 million for the quarter
ended March 31, 2001.
GENTA EUROPE
During 1995, Genta Pharmaceuticals Europe S.A. ("Genta Europe"), a
wholly-owned subsidiary of Genta, received funding in the form of a loan from
ANVAR, a French government agency, in the amount of FF5.4 million (or
approximately US$.729 million at December 31, 2001) with a scheduled maturity of
December 31, 2002. Pursuant to the loan agreement with ANVAR, the utilization of
the proceeds was intended to fund research and development activities. In
October 1996, in connection with a restructuring of Genta's operations, Genta
terminated all scientific personnel of Genta Europe. In February 1998, ANVAR
asserted that Genta Europe was not in compliance with the ANVAR Agreement, and
that ANVAR might request immediate repayment of the loan. In July 1998, ANVAR
notified Genta Europe of its demand for accelerated repayment of the loan in the
amount of FF4.2 million (or approximately US$.567 million at December 31, 2001)
and subsequently notified us that Genta was liable as a guarantor on the note.
Based on the advice of French counsel, we do not believe that ANVAR is entitled
to accelerated repayment under the terms of the ANVAR Agreement. We also
believe it to be unlikely that Genta will incur any liability in this matter,
although there can be no assurance thereof.
In June 1998, Marseille Amenagement, a company affiliated with the city of
Marseilles, France, filed suit in France to evict Genta Europe from its
facilities in Marseilles and to demand payment of alleged back rent due and of a
lease guarantee for nine years rent. Following the filing of this claim and in
consideration of the request for repayment of the loan from ANVAR, Genta
Europe's Board of Directors directed the management to declare a "Cessation of
Payment." Under this procedure, Genta Europe ceased operations and terminated
its only remaining employee. A liquidator was appointed by the Court to take
control of any assets of Genta Europe and to make payment to creditors. In
December 1998, the Court in Marseilles dismissed the case against Genta Europe
and indicated that it had no jurisdiction against Genta Incorporated. In August
1999, Marseille Amenagement instituted legal proceedings against us in the
Commercial Court of Marseilles, alleging back rent and early termination
receivables aggregating FF2.5 million (or approximately US$.338 million at
December 31, 2001). On October 8, 2001, the Commercial Court of Marseilles
rendered their decision which declared the action brought by Marseille
Amenagement as admissible and ordered us to pay an amount of FF1.9 million (or
approximately US$.260 million at December 31, 2001). The Company does not
believe that Marseille Amenagement is entitled to payment and it is currently
considering whether to appeal this decision or negotiate with Marseille
Amenagement to achieve a mutually satisfactory resolution.
At December 31, 2001, the Company has accrued a net liability of $.350
million related to the liquidated subsidiary and related matters, which
management believes is adequate to provide for these contingencies.
On December 31, 2001, the fair value of the Company's debt obligations
pursuant to the aforementioned arrangements is not readily determinable. The
carrying value at December 31, 2001, approximating $.827 million, represents the
value of the original issuance of such debt instruments, which may be liquidated
against Genta Europe's $.590 million deposit with such French governmental
agency. At December 31, 2000, the Company had $.575 million of net liabilities
of liquidated subsidiary recorded. At December 31, 2001, the Company reduced the
net liabilities of liquidated subsidiary to $.350 million and, therefore,
pursuant to guidelines established in SFAS No. 5 "Accounting for Contingencies"
and Financial Accounting Standards Board Interpretation No. 14 "Reasonable
Estimation of the Amount of a Loss," such amount is sufficient to cover any
potential liability. Therefore, management believes no additional accrual is
necessary. However, there can be no assurance that the Company will not incur
additional material costs in relation to this claim.
PURCHASE COMMITMENTS
At December 31, 2001, the Company was obligated for $4.0 million under firm
commitments for drug substance purchases during 2002. Subsequent to year-end,
the Company is obligated for an additional $7.75 million in firm commitments
for drug substance purchases during 2002.
48
15. DISCONTINUED OPERATIONS
On March 19, 1999 (the "Measurement Date"), the Company entered into an
Asset Purchase Agreement (the "JBL Agreement") with Promega whereby its wholly
owned subsidiary Promega Biosciences Inc. would acquire substantially all of the
assets and assume certain liabilities of JBL for approximately $4.8 million in
cash, a 7% promissory note for $1.2 million, and certain pharmaceutical
development services in support of the Company's development activities. The
transaction was completed on May 10, 1999 (the "Disposal Date"), with a gain on
the sale of approximately $1.6 million being recognized, based upon the purchase
price of JBL, less its net assets and costs and expenses associated with the
sale, including lease termination costs of $1.1 million, JBL losses of $.147
million, and legal, accounting, tax and other miscellaneous costs of the sale
approximating $.653 million.
In connection with the JBL Agreement, the residual net assets of JBL were
for the year ended December 31, 1999 charged to gain on sale of discontinued
operations as of May 10, 1999. The results of operations for the discontinued
segment are included in discontinued operations in the consolidated statement of
operations for the period January 1, 1999 through the Measurement Date, March
19, 1999. Losses incurred by JBL from the Measurement Date through the Disposal
Date were deferred and charged to gain on sale of discontinued operations.
Results of discontinued operations consisted of the following ($ thousands):
PERIOD FROM
JANUARY 1,
1999 TO MAY
10, 1999
-----------
Product sales................................................... $ 1,719
Operating expenses............................................... (2,051)
Other income (expense) .......................................... (4)
Losses from March 19, 1999 through May 10, 1999 charged to Gain on
Sale of JBL..................................................... 147
--------
Loss............................................................. $ (189)
=======
In connection with the JBL Agreement and as more fully discussed in Note
13, the Company granted stock options during 1999 to acquire 450,000 shares of
common stock, to the owners of the building previously leased to JBL, some of
whom were JBL employees. These options were accounted for pursuant to the
Black-Scholes option pricing model and had an approximate value of $1.0 million
which was charged against the gain on the sale of JBL. In addition, 245,500
options were granted to former employees of JBL in connection with an ongoing
service arrangement between Promega and the Company. The fair value of these
options amounting to $1.7 million was charged to continuing operations as
non-cash equity related compensation expense in the amount of $.948 million and
$.757 for the years ended December 31, 2000 and 1999, respectively.
49
16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
2001 QUARTER ENDED
-----------------------------------------------------
($ thousands, except per share data) MAR. 31 JUN. 30 SEP. 30 DEC. 31
--------- ------- -------- --------
Revenues ............................................. $ 70 $ 12 $ 23 $ 41
Operating expenses ................................... 7,028 11,129 11,210 18,203
Loss from continuing operations ...................... (7,459) (10,903) (10,420) (17,931)
Net loss ............................................. (7,459) (10,903) (10,420) (17,931)
Loss per common share from continuing operations:
Basic .............................................. $ (0.15) $ (0.21) $ (0.19) $ (0.29)
Diluted ............................................ $ (0.15) $ (0.21) $ (0.19) $ (0.29)
Net loss per common share:
Basic .............................................. $ (0.15) $ (0.21) $ (0.19) $ (0.29)
Diluted ............................................ $ (0.15) $ (0.21) $ (0.19) $ (0.29)
2000 QUARTER ENDED
-----------------------------------------------------
($ thousands, except per share data) MAR. 31 JUN. 30 SEP. 30 DEC. 31
--------- ------- -------- --------
Revenues ............................................. $ -- $ -- $ 17 $ 5
Operating expenses ................................... 1,359 3,025 2,257 3,512
Loss from continuing operations ...................... (8,738) (2,939) (2,304) 1,530
Net loss ............................................. (8,738) (2,939) (2,304) 1,530
Loss per common share from continuing operations:
Basic .............................................. $ (0.44) $ (0.09) $ (0.05) $ 0.17
Diluted ............................................ $ (0.44) $ (0.09) $ (0.05) $ 0.02
Net loss per common share:
Basic .............................................. $ (0.44) $ (0.09) $ (0.05) $ 0.17
Diluted ............................................ $ (0.44) $ (0.09) $ (0.05) $ 0.02
17. SUPPLEMENTAL DISCLOSURE OF CASH FLOWS, AND NON-CASH INVESTING AND
FINANCING ACTIVITIES
YEARS ENDED DECEMBER 31,
--------------------------------------
($ thousands) 2001 2000 1999
----- ----- -----
Preferred stock dividend accrued ............................................ $ - $3,443 $7,677
Preferred stock dividend imputed on penalty warrants ........................ - - 1,835
Notes Receivable and accrued interest from sale of discontinued operations .. - - 1,254
Notes Receivable from sale of equipment ..................................... - - 200
Dividends imputed in connection with related party acquisition .............. - - 441
Issuance of common stock in connection with legal settlement ................ - - 200
Common stock issued in payment of dividends on preferred stock .............. - 8,577 -
Common stock issued in payment of patent portfolios ......................... - 2,484 -
Income receivable on securities to be sold .................................. (3) 64 -
Market value change on short-term investments ............................... (97) 31 -
Stock warrants issued to placement agent .................................... - 867 -
Common stock to be issued in payment of future royalties .................... - 1,268 -
Common stock issued in payment of hiring bonus .............................. 50 - -
Interest paid during the year ended December 31, 2000 was $.036 million. No
interest was paid in the years ended December 31, 2001 and 1999.
51
PART III
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Changes in Accountants
None.
Disagreements with Accountants
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required in this item is incorporated by reference from the
Company's definitive proxy statement to be filed not later than April 30, 2002
pursuant to Regulation 14A of the General Rules and Regulations under the
Securities Exchange Act of 1034, as amended ("Regulation 14A").
ITEM 11. EXECUTIVE COMPENSATION
The information required in this item is incorporated by reference from the
Company's definitive proxy statement to be filed not later than April 30, 2002
pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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, 2002
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, 2002
pursuant to Regulation 14A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial statements.
(1) Reference is made to the Index to Financial Statements under Item 8 of
this report on Form 10-K.
(2) All schedules are omitted because they are not required, are not
applicable, or the required information is included in the consolidated
financial statements or notes thereto.
(3) Reference is made to Paragraph (c) below for Exhibits required by Item
601 of Regulation S-K, including management contracts and compensatory plans and
arrangements.
(b) Reports on Form 8-K. The Company filed the following reports on Forms
8-K:
On December 3, 2001, the Company filed a Current Report on Form 8-K
disclosing two press releases issued in November 2001 regarding the completion
of two private placements.
On November 12, 1999, the Company filed a Current Report on Form 8-K
disclosing the appointment of a new Chief Executive Officer and a new Chairman
of the Board of Directors.
(c) Exhibits required by Item 601 of Regulation S-K with each management
contract, compensatory plan or arrangement required to be filed identified.
52
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
3(i).1(7) Restated Certificate of Incorporation of the Company.
3(i).2(9) Certificate of Designations of Series D Convertible Preferred Stock of the Company.
3(i).3(15) Certificate of Amendment of Restated Certificate of Incorporation of the Company.
3(i).4(15) Amended Certificate of Designations of Series D Convertible Preferred Stock of the Company.
3(i).5(15) Certificate of Increase of Series D Convertible Preferred Stock of the Company.
3(i).6(13) Certificate of Amendment of Restated Certificate of Incorporation of the Company.
3(i).7(13) Certificate of Amendment of Restated Certificate of Incorporation of the Company.
3(i).8(15) Certificate of Amendment of Restated Certificate of Incorporation of the Company.
3(ii).1(13) Amended and Restated Bylaws of the Company.
4.1(1) Specimen Common Stock Certificate.
4.2(4) Specimen Series A Convertible Preferred Stock Certificate.
4.4(4) Form of Unit Purchase Agreement dated as of September 23, 1993 by and between the Company and the
Purchasers of the Series A Convertible Preferred Stock.
10.1(2) Amended and Restated 1991 Stock Plan of Genta Incorporated.
10(iii)(A).1(13) Non-Employee Directors' 1998 Stock Option Plan.
10(iii)(A).2(13) 1998 Stock Incentive Plan.
10.2(1) Form of Indemnification Agreement entered into between the Company and its directors and officers.
10.3(1) Preferred Stock Purchase Agreement dated September 30, 1991 and Amendment Agreement dated October
2, 1991.
10.4(1)H Development, License and Supply Agreement dated February 2, 1989 between the Company and
Gen-Probe Incorporated.
10.5(3)H Common Stock Transfer Agreement dated as of December 15, 1992, between the Company and Dr.
Jacques Gonella.
10.6(3) Consulting Agreement dated as of December 15, 1992, between the Company and Dr. Jacques Gonella.
10.7(3)H Common Stock Transfer Agreement dated as of December 15, 1992, between the Company and Jagotec AG.
10.8(3)H Collaboration Agreement dated as of January 22, 1993, between Jobewol Investments B.V. (now known
as Genta Jago Technologies B.V.) and Gensia, Inc.
10.9(5) Form of Purchase Agreement between the Company and certain purchasers of Common Stock.
53
10.10(5) Common Stock Purchase Warrant dated May 8, 1995 between the Company and Index Securities S.A.
10.11(6)H Restated Joint Venture and Shareholders Agreement dated as of May 12, 1995 between the Company,
Jagotec AG, Jago Holding AG, Jago Pharma AG and Genta Jago Technologies B.V.
10.12(6)H Limited Liability Company Agreement of Genta Jago Delaware LLC dated as of May 12, 1995 between
GPM Generic Pharmaceuticals Manufacturing Inc. and the Company.
10.13(6)H Restated Transfer Restriction Agreement dated as of May 12, 1995 between the Company and Jagotec
AG.
10.14(6)H Transfer Restriction Agreement dated as of May 12, 1995 between the Company, GPM Generic
Pharmaceuticals Manufacturing Inc. and Jago Holding AG.
10.15(6)H Common Stock Transfer Agreement dated as of May 30, 1995 between the Company and Jago Finance
Limited.
10.16(6)H Stockholders' Agreement dated as of May 30, 1995 between the Company, Jagotec AG, Dr. Jacques
Gonella and Jago Finance Limited.
10.17(6)H Restated GEOMATRIX Research and Development Agreement dated as of May 12, 1995 between Jago
Pharma AG, the Company, Genta Jago Delaware, L.L.C. and Genta Jago Technologies B.V.
10.18(6)H Restated Services Agreement dated as of May 12, 1995 between Jago Pharma AG, the Company, Genta
Jago Delaware, L.L.C. and Genta Jago Technologies B.V.
10.19(6)H Restated Working Capital Agreement dated as of May 12, 1995 and Amendment No. 1 to Restated Working Capital
Agreement dated as of July 11, 1995 between the Company and Genta Jago Technologies B.V.
10.20(6)H Restated Promissory Note dated as of January 1, 1994 between Genta Jago Technologies B.V. and the
Company.
10.21(6)H Restated License Agreement dated as of May 12, 1995 between Jagotec AG and the Company.
10.22(6)H Restated GEOMATRIX License Agreement dated as of May 12, 1995 between Jagotec AG and Genta Jago
Technologies B.V.
10.23(6)H GEOMATRIX Manufacturing License Agreement dated as of May 12, 1995 between Jagotec AG and Genta
Jago Technologies B.V.
10.24(6)H Restated GEOMATRIX Supply Agreement dated as of May 12, 1995 between Jago Pharma AG and Genta
Jago Technologies B.V.
10.25(7) Common Stock Purchase Warrant dated December 14, 1995 between the Company and Lease Management
Services, Inc.
10.26(8) Common Stock Purchase Warrant for 375,123 shares of Common Stock issued to Lyon & Lyon.
10.27(8) Common Stock Purchase Warrant for 100,000 shares of Common Stock issued to Michael Arnouse.
10.28(9) Note and Warrant Purchase Agreement dated as of January 28, 1997 among the Company, The Aries
Fund and The Aries Domestic Fund, L.P.
10.29(9) Letter Agreement dated January 28, 1997 from the Company to The Aries Fund and The Aries Domestic
Fund, L.P.
10.30(9) Senior Secured Convertible Bridge Note of the Company dated January 28, 1997 for $1.050 million
issued to The Aries Domestic Fund, L.P.
54
10.31(9) Senior Secured Convertible Bridge Note of the Company dated January 28, 1997 for $1.950 million
issued to The Aries Trust.
10.32(9) Class A Bridge Warrant for the Purchase of 2,730,000 shares of Common Stock issued to The Aries
Domestic Fund, L.P.
10.33(9) Class A Bridge Warrant for the Purchase of 5,070,000 shares of Common Stock issued to The Aries
Trust.
10.34(9) Class B Bridge Warrant for the Purchase of 4,270,000 shares of Common Stock issued to The Aries
Domestic Fund, L.P.
10.35(9) Class B Bridge Warrant for the Purchase of 7,930,000 shares of Common Stock issued to the Aries
Trust.
10.36(9) Security Agreement dated as of January 28, 1997 between the Company and Paramount Capital, Inc.,
as agent for the holders of the Company's Senior Secured Convertible Bridge Notes
10.37(9) Letter Agreement dated January 28, 1997 among the Company, Paramount Capital, Inc., The Aries
Domestic Fund, L.P. and The Aries Trust.
10.38(10) Executive Compensation Agreement dated as of January 1, 1996 between the Company and Howard
Sampson.
10.39(10) Collaboration Agreement dated December 26, 1995 between the Company and Johnson & Johnson
Consumer Products, Inc.
10.40(10) Assignment Agreement (of Gensia Inc.'s rights in the Collaboration Agreement between Genta Jago
and Gensia, Inc., dated January 23, 1993) to Brightstone Pharma, Inc., dated October 1, 1996
among Gensia, Inc., Genta Jago Technologies B.V., Brightstone Pharma, Inc., and SkyePharma PLC.
10.41(10)H Development and Marketing Agreement effective February 28, 1996 between Apothecon, Inc. and Genta
Jago Technologies B.V.
10.42(10)H License Agreement effective February 28, 1996 between Apothecon, Inc. and Genta Jago Technologies
B.V.
10.43(10)H Option, Development & Sub-License Agreement (the Company has requested confidential treatment for
the name of this element) dated as of October 31, 1996 between Genta Jago Technologies B.V. and
Krypton Ltd.
10.44(10)H Development and Sub-License Agreement (the Company has requested confidential treatment for the
name of this element) dated as of October 31, 1996 between Genta Jago Technologies B.V. and
Krypton Ltd.
.
10.45(10)H Development and Sub-License Agreement (the Company has requested confidential treatment for the
name of this element) dated as of October 31, 1996 between Genta Jago Technologies B.V. and
Krypton Ltd.
10.46(10)H Development and Sub-License Agreement/Diclofenac dated as of October 31, 1996 between Genta Jago
Technologies B.V. and Krypton Ltd.
10.47(10)H Development and Sub-License Agreement/Naproxen dated as of October 31, 1996 between Genta Jago
Technologies B.V. and Krypton Ltd.
10.48(10)H Development and Sub-License Agreement/Verapamil dated as of October 31, 1996 between Genta Jago
Technologies B.V. and Krypton Ltd.
55
10.49(10)H License Termination Agreement dated December 2, 1996 between the Company and Wilton Licensing AG and the
Company.
10.50(10) Contract for Regional Aid for Innovation, effective July 1, 1993, between L'Agence Nationale de
Valorisation de la Recherche, Genta Pharmaceuticals Europe S.A. and the Company.
10.51(11) Warrant for the Purchase of 32,500 shares of Common Stock of the Company, issued to The Aries
Fund.
10.52(11) Warrant for the Purchase of 17,500 shares of Common Stock of the Company, issued to The Aries
Domestic Fund, L.P.
10.53(11) Amended and Restated Amendment Agreement dated June 23, 1997 among the Company and The Aries Fund
and The Aries Domestic Fund L.P.
10.54(11) Amended and Restated Senior Secured Convertible Bridge Note for $1.050 million issued to The
Aries Domestic Fund, L.P.
10.55(11) Amended and Restated Senior Secured Convertible Bridge Note for $1.950 million issued to The
Aries Trust.
10.56(11) New Class A Bridge Warrant for the Purchase of 350,000 shares of Common Stock issued to The Aries
Domestic Fund, L.P.
10.57(11) New Class A Bridge Warrant for the Purchase of 650,000 shares of Common Stock issued to The Aries
Trust.
10.58(11) New Class B Bridge Warrant for the Purchase of 350,000 shares of Common Stock issued to The Aries
Domestic Fund, L.P.
10.59(11) New Class B Bridge Warrant for the Purchase of 650,000 shares of Common Stock issued to The Aries
Trust.
10.60(11) Consulting Agreement dated as of August 27, 1997 by and between the Company and Paul O.P. Ts'o,
Ph.D.
10.61(11) Consulting Agreement dated as of August 27, 1997 by and between the Company and Sharon B.
Webster, Ph.D.
10.62(15) Warrant Agreement, dated as of May 20, 1997, among the Company, ChaseMellon Shareholder Services,
L.L.C., as warrant agent, and Paramount Capital, Inc.
10.63(12) Severance Agreement, Release and Covenant Not to Sue dated May 5, 1998 between Thomas H. Adams,
Ph.D. and the Company.
10.64(12) Consulting Agreement dated May 5, 1998 between the Company and Thomas H. Adams, Ph.D.
10.65(14) Asset Purchase Agreement, dated as of March 19, 1999, among JBL Acquisition Corp., JBL Scientific
Incorporated and the Company.
10.66(14) Agreement of Sublease dated March 31, 1999 between Interneuron Pharmaceuticals, Inc. and the
Company
10.67(15) Warrant Agreement, dated as of December 23, 1999, among the Company, ChaseMellon Shareholder
Services, L.L.C., as warrant agent, and Paramount Capital, Inc.
10.68(15) Separation Letter Agreement dated December 1, 1999 from the Company to Kenneth G. Kasses, Ph.D.
56
10.69(15) Amendment No. 1 to Stock Option Agreement, dated as of December 1, 1999, to the Stock Option
Agreement, dated as of May 28, 1998, between the Company and Kenneth G. Kasses, Ph.D.
10.70(15) Employment Letter Agreement, dated as of October 28, 1999, from the Company to Raymond P.
Warrell, Jr., M.D.
10.71(15) Stock Option Agreement, dated as of October 28, 1999, between the Company and Raymond P. Warrell,
Jr., M.D.
10.72(15) Letter Agreement, dated March 4, 1999, from SkyePharma Plc to the Company.
10.73(16) Subscription Agreement executed in connection with the November 26, 2001 sale of common stock to
Franklin Small-Mid Cap Growth Fund, Franklin Biotechnology Discovery Fund, and SF Capital
Partners Ltd., and the November 30, 2001 sale of common stock to SF Capital Partners Ltd.
10.74(16) Employment Letter Agreement, dated as of March 27, 2001, from the Company to Loretta M. Itri, M.D.
10.75(16) Employment Letter Agreement, dated as of July 24, 2001, from the Company to Alfred J. Fernandez.
10.76 Agreement of lease, The Connell Company, dated June 28, 2000.
10.77 Agreement of sublease, Expants, Inc., dated August 13, 2000.
22.1(10) Subsidiaries of the Registrant.
23.1(16) Consent of Deloitte & Touche LLP, Independent Auditors.
----------
H The Company has been granted confidential treatment of certain portions of
this exhibit.
(1) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form S-1, Registration No. 33-43642.
(2) Exhibit 10.1 is incorporated herein by reference to Exhibit 10.1 to the
Company's Registration Statement on Form S-8, Registration No. 33-85887.
(3) Incorporated by reference to the exhibits to the Company's Registration
Statement on Form S-3, Registration No. 33-58362.
(4) Incorporated by reference to the exhibits to the Company's Current Report
on Form 8-K dated as of September 24, 1993, Commission File No. 0-19635.
(5) Incorporated by reference to the exhibits of the same number to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1995, Commission File No. 0-19635.
(6) Incorporated by reference to the exhibits to the Company's Quarterly Report
on Form 10-Q/A for the quarter ended June 30, 1995, Commission File No.
0-19635.
(7) Incorporated herein by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995, Commission File
No. 0-19635.
(8) Exhibits 10.26 and 10.27 are incorporated herein by reference to Exhibits
4.1 and 4.2, respectively, to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996, Commission File No. 0-19635.
(9) Exhibits 3(i).2, 10.28, 10.29, 10.30, 10.31, 10.32, 10.33, 10.34, 10.35,
10.36 and 10.37 are incorporated herein by reference to Exhibits 3(i),
10.1, 10.2, 10.3, 10.4, 10.5, 10.6, 10.7, 10.8, 10.9 and 10.10,
respectively, to the Company's Current Report on Form 8-K filed on February
28, 1997, Commission File No. 0-19635.
(10) Exhibits 10.38, 10.39, 10.40, 10.41, 10.42, 10.43, 10.44, 10.45, 10.46,
10.47, 10.48, 10.49, 10.50 and 22.1 are incorporated herein by reference to
Exhibits 10.86, 10.87, 10.88, 10.89, 10.90, 10.91, 10.92, 10.93, 10.94,
10.95, 10.96, 10.97, 10.98 and 22.1, respectively, the Company's Annual
Report on Form 10-K (Amendment No. 1) for the year ended December 31, 1996,
Commission File No. 0-19635.
57
(11) Exhibits 10.51, 10.52, 10.53, 10.54, 10.55, 10.56, 10.57, 10.58, 10.59,
10.60 and 10.61 are incorporated herein by reference to Exhibits 10.99,
10.100, 10.101, 10.102, 10.103, 10.104, 10.105, 10.106, 10.107, 10.108 and
10.109, respectively, to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997, Commission File No. 0-19635.
(12) Exhibits 10.63 and 10.64 are incorporated herein by reference to Exhibits
10.1 and 10.2, respectively, to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998, Commission File No. 0-19635.
(13) Exhibits 3(i).6, 3(i).7, 3(ii).1, 10(iii)(A).1 and 10(iii)(A).2 are
incorporated herein by reference to Exhibits 3(i).4, 3(i).3, 3(ii).1,
10(iii)(A).1 and 10(iii)(A).2, respectively, to the Company's Annual Report
on Form 10-K for the year ended December 31, 1998, Commission File No.
0-19635.
(14) Exhibits 10.65 and 10.66 are incorporated herein by reference to Exhibits
10.2 and 10.1, respectively, to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999, Commission File No. 0-19635.
(15) Exhibits 3(i).3, 3(i).4, 3(i).5, 3(i).8, 10.62, 10.67, 10.68, 10.69, 10.70,
10.71 and 10.72 are incorporated herein by reference to Exhibits 3(i).3,
3(i).4, 3(i).5, 3(i).8, 10.62, 10.67, 10.68, 10.69, 10.70, 10.71 and 10.72
respectively, to the Company's Annual Report on Form 10-K for the year
ended December 31, 1999, Commission File No. 0-19635.
(16) Filed herewith.
58
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
29th day of March 2002.
Genta Incorporated
/s/ Raymond P. Warrell, JR., M.D.
----------------------------------
Raymond P. Warrell, Jr., M.D.
Chairman, President, Chief Executive
Officer and Principal
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ Raymond P. Warrell, JR., M.D. Chairman, President, Chief Executive March 29, 2002
------------------------------------- Officer and Principal Executive Officer
Raymond P. Warrell, Jr., M.D.
/s/ Alfred J. Fernandez Principal Financial and Accounting March 29, 2002
------------------------------------- Officer, Executive Vice President
Alfred J. Fernandez
/s/ Betsy McCaughey, Ph.D. Director March 29, 2002
-------------------------------------
Betsy McCaughey, Ph.D.
/s/ Daniel D. Von Hoff, M.D. Director March 29, 2002
-------------------------------------
Daniel D. Von Hoff, M.D.
/s/ Harlan J. Wakoff Director March 29, 2002
-------------------------------------
Harlan J. Wakoff
/s/ Michael S. Weiss Director March 29, 2002
-------------------------------------
Michael S. Weiss
/s/ Patrick Zenner Director March 29, 2002
-------------------------------------
Patrick Zenner
59