Unassociated Document
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-162117
PROSPECTUS
GENTA
INCORPORATED
54,713,329
Shares of Common Stock
This
prospectus relates to offers and resales or other dispositions by certain of our
security holders or their transferees of up to 54,713,329 shares of our common
stock, par value $0.001 per share, including 37,391,688 shares issued as part of
the July 7, 2009 and September 4, 2009 financings, 1,215,000 shares issuable
upon the exercise of warrants issued pursuant to the July 7, 2009 securities
purchase agreement, or the July 2009 Warrants, 14,574,141 shares issuable upon
the conversion of 8% unsecured subordinated convertible notes issued pursuant to
the July 7, 2009 securities purchase agreement, or the July 2009 Notes, and
1,532,500 shares issuable upon the conversion of 8% unsecured subordinated
convertible notes issued pursuant to the September 4, 2009 securities purchase
agreement, or the September 2009 Notes.
These
shares may be sold by the selling stockholders from time to time in the
over-the-counter market or other national securities exchange or automated
interdealer quotation system on which our common stock is then listed or quoted,
through negotiated transactions or otherwise. The prices at which the
selling stockholders may sell the shares will be determined by prevailing market
price for the shares or in negotiated transactions. We will not
receive any of the proceeds from the disposition of these shares by the selling
stockholders, other than as a result of the exercise of July 2009 Warrants for
cash held by the selling stockholders. All costs associated with this
registration will be borne by us. The selling stockholders will bear
all commissions and discounts, if any, attributable to their respective sales of
shares. On June 26, 2009, we effected a 1-for-50 reverse stock
split. As a result, the share numbers and stock price numbers found
herein for periods prior to June 26, 2009 have been retroactively adjusted to
account for the effect of the reverse stock split for all periods presented
prior to June 26, 2009.
On
December 16, 2009, the closing price of our common stock was $0.08 per share.
Our common stock
is quoted on the OTC Bulletin Board under the symbol “GETA.OB”
Brokers
or dealers effecting transactions in these shares should confirm that the shares
are registered under the applicable state law or that an exemption from
registration is available.
These
securities are speculative and involve a high degree of risk.
Please
refer to “Risk Factors” beginning on page 6.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal
offense.
The
date of this prospectus is December 23, 2009.
TABLE
OF CONTENTS
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Page
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PROSPECTUS
SUMMARY
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1
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RISK
FACTORS
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6
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FORWARD-LOOKING
STATEMENTS
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18
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USE
OF PROCEEDS
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18
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DETERMINATION
OF OFFERING PRICE
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19
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DIVIDEND
POLICY
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19
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CAPITALIZATION
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20
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DILUTION
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21
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SELLING
STOCKHOLDERS
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21
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ADDITIONAL
INFORMATION ABOUT TRANSACTIONS BETWEEN THE COMPANY AND THE SELLING
STOCKHOLDERS
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31
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DESCRIPTION
OF BUSINESS
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52
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DESCRIPTION
OF PROPERTY
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62
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LEGAL
PROCEEDINGS
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62
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PRICE
RANGE OF COMMON STOCK
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63
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EQUITY
COMPENSATION PLAN INFORMATION
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64
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SELECTED
FINANCIAL INFORMATION
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65
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SUPPLEMENTARY
FINANCIAL INFORMATION
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67
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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68
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CHANGE
IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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83
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QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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83
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MANAGEMENT
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84
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EXECUTIVE
COMPENSATION
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86
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SECURITY
OWNERSHIP OF MANAGEMENT
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100
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
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101
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SHARES
ELIGIBLE FOR FUTURE SALE
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105
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
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106
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DESCRIPTION
OF CAPITAL STOCK
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107
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PLAN
OF DISTRIBUTION
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110
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LEGAL
MATTERS
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111
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EXPERTS
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111
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HOW
TO GET MORE INFORMATION
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112
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INDEX
TO FINANCIAL STATEMENTS
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F-1
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You
should rely only on the information contained in this prospectus. We have not
authorized anyone to provide you with information different from the information
contained in this prospectus. We are not making an offer to sell securities in
any state where offers and sales are not permitted. The information
contained in this prospectus is accurate only as of the date of this prospectus,
regardless of when this prospectus is delivered or when any sale of our common
stock occurs.
FOR INVESTORS OUTSIDE THE UNITED
STATES : We have not done anything that would permit this offering or
possession or distribution of this prospectus in any jurisdiction where action
for that purpose is required, other than in the United States. You are required
to inform yourselves about, and to observe any restrictions relating to, this
offering and the distribution of this prospectus.
PROSPECTUS
SUMMARY
This summary does not contain all of
the information you should consider before buying our securities. You
should read the entire prospectus carefully, especially the “Risk Factors”
section and our consolidated financial statements and the related notes appearing at
the end of this prospectus, before deciding to invest in our
securities.
Introduction
Unless
otherwise stated, all references to “us,” “our,” “we,” “Genta,” the “Company”
and similar designations refer to Genta Incorporated and its
subsidiaries.
This
prospectus relates to the resale by the selling stockholders identified in this
prospectus of up to 54,713,329 shares of common stock, including 37,391,688
shares issued as part of the July 7, 2009 and September 4, 2009 financings,
1,215,000 shares issuable upon the exercise of the July 2009 Warrants,
14,574,141 shares issuable upon the conversion of the July 2009 Notes and
1,532,500 shares issuable upon the conversion of the September 2009
Notes. All of the shares, when sold, will be sold by these selling
stockholders. The selling stockholders may sell their shares of
common stock from time to time at market prices prevailing at the time of sale,
at prices related to the prevailing market price or at negotiated
prices. We will not receive any proceeds from the sale of the shares
of common stock by the selling stockholders other than as a result of the
exercise of the July 2009 Warrants for cash held by the selling
stockholders.
Overview
We are a
biopharmaceutical company engaged in pharmaceutical (drug) research and
development. We are dedicated to the identification, development and
commercialization of novel drugs for the treatment of cancer and related
diseases. Our research portfolio consists of two major programs: “DNA/RNA
Medicines” (which includes our lead oncology drug, Genasense®); and
“Small Molecules” (which includes our marketed product, Ganite®, and
tesetaxel and oral gallium-containing compounds).
The
DNA/RNA Medicines program includes drugs that are based on using modifications
of either DNA or RNA as drugs that can be used to treat disease. These
technologies include antisense, decoys, and small interfering or micro RNAs. Our
lead drug from this program is an investigational antisense compound known as
Genasense®
(oblimersen sodium injection). Genasense® is
designed to disrupt a specific mRNA, which then block the production of a
protein known as Bcl-2. Current science suggests that Bcl-2 is a fundamental
(although not sole) cause of the inherent resistance of cancer cells to
anticancer treatments, such as chemotherapy, radiation, and monoclonal
antibodies. While Genasense® has
displayed anticancer activity when used alone, we are developing the drug
primarily as a means of amplifying the cytotoxic effects of other anticancer
treatments. We are also developing tesetaxel as an oral agent that
targets tubulin in cancer cells, an extremely well-validated cancer
target. Oral gallium compounds employ the same active ingredient in
our marketed product, Ganite®, that
has demonstrated clinical activity in a range of diseases associated with
accelerated bone loss.
Genasense®
For the
past several years, we have sought to secure regulatory approval for the
marketing of Genasense®.
Genasense® has been
studied in combination with a wide variety of anticancer drugs in a number of
different cancer indications. We have reported results from randomized trials of
Genasense® in a
number of diseases. Under our own sponsorship or in collaboration with others,
we are currently conducting additional clinical trials. We are especially
interested in the development, regulatory approval, and commercialization of
Genasense® in at
least three diseases: melanoma; chronic lymphocytic leukemia (CLL); and
non-Hodgkin’s lymphoma (NHL).
Melanoma
Our major
current initiative is a randomized controlled trial that tests whether the
addition of Genasense® to
standard chemotherapy can improve outcomes for patients with advanced melanoma.
In August 2007, we initiated a new Phase 3 trial of Genasense® plus
chemotherapy in advanced melanoma. This trial, known as AGENDA, is a randomized,
double-blind, placebo-controlled study in which patients are randomly assigned
to receive Genasense® plus
dacarbazine or dacarbazine alone. The study uses LDH, a blood enzyme associated
with progressive melanoma, as a biomarker to identify patients who are most
likely to respond to Genasense®, based
on data obtained from our preceding trial in melanoma.
The
design of AGENDA was based on data obtained from a similarly designed Phase 3
trial that was published in 2006. Results from this antecedent study showed that
treatment with Genasense® plus
dacarbazine compared with dacarbazine alone was associated with a statistically
significant increase in overall response, complete response, durable response,
and progression-free survival (PFS). However, the primary endpoint of overall
survival approached but did not quite reach statistical significance (P=0.077)
in the entire “intent-to-treat” population. Our analysis showed a significant
treatment interaction effect related to LDH. This benefit was
particularly noteworthy for patients whose baseline LDH did not exceed 80% of
the upper limit of normal for this lab value.
In March
2009, we completed accrual of 314 patients into AGENDA. In October 2009, we
announced that AGENDA did not show a statistically significant benefit for its
co-primary endpoint of progression-free survival. Secondary endpoints
of overall response rate and disease control rate (which includes complete and
partial responses, plus stable disease greater than 3 months duration) also did
not show a statistically significant benefit. According to the pre-specified
analysis plan, the statistical significance of durable response (a secondary
endpoint that measures the proportion of patients who achieved a complete or
partial response that lasts greater than 6 months) was too early to evaluate.
However, the observed differences in progression-free survival, overall
response, disease control and durable response all numerically favored the group
that received Genasense®.
Overall
survival, the other co-primary endpoint in AGENDA, was also too early to
evaluate, as prospectively specified. An analysis for futility, which
was defined as greater than 50% conditional power to observe a statistically
significant benefit of Genasense®
(P<0.05) under the prospectively specified hazard ratio of
0.69, was conducted for the co-primary endpoint of overall
survival. AGENDA passed this futility analysis, and an Independent
Data Monitoring Committee recommended that the trial continue to completion for
the determination of the overall survival endpoint. The safety profile of
Genasense® in
AGENDA was consistent with prior studies. Pending adequacy of financial
resources and other contingencies noted herein, Genta currently intends to
continue the AGENDA trial in order to determine whether the addition of
Genasense® to dacarbazine is associated with a statistically significant
increase in overall survival. If that association is demonstrated, we
currently expect that Genta would submit regulatory applications for the
marketing approval of Genasense® on a worldwide basis.
We have
been conducting other trials of Genasense® in
melanoma including a Phase 2 trial of Genasense® plus
chemotherapy consisting of Abraxane®
(paclitaxel protein-bound particles for injectable suspension) (albumin bound)
plus temozolomide (Temodar®). We
have expected to examine whether different dosing regimens would improve the
dosing convenience. We are currently assessing whether to continue such
trials.
CLL
As noted
above, our NDA for the use of Genasense® plus
chemotherapy in patients with relapsed or refractory CLL was not approved. We
conducted a randomized Phase 3 trial in 241 patients with relapsed or refractory
CLL who were treated with fludarabine and cyclophosphamide (Flu/Cy) with or
without Genasense®. The
trial achieved its primary endpoint: a statistically significant increase (17%
vs. 7%; P=0.025) in the proportion of patients who achieved a complete response
(CR), defined as a complete or nodular partial response. Patients who achieved
this level of response also experienced disappearance of predefined disease
symptoms. A key secondary endpoint, duration of CR, was also significantly
longer for patients treated with Genasense® (median
exceeding 36+ months in the Genasense® group,
versus 22 months in the chemotherapy-only group).
Several
secondary endpoints were not improved by the addition of Genasense®. The
percentage of patients who experienced serious adverse events was increased in
the Genasense® arm;
however, the percentages of patients who discontinued treatment due to adverse
events were equal in the treatment arms. The incidence of certain serious
adverse reactions, including but not limited to nausea, fever and
catheter-related complications, was increased in patients treated with
Genasense®.
We
received a “non-approvable” notice from the FDA in December 2006 for our NDA
that proposed the use of Genasense® in
combination with Flu/Cy for the treatment of patients with relapsed or
refractory CLL who had previously received fludarabine. In June 2008, we
announced results from 5 years of follow-up on patients who had been accrued to
our completed Phase 3 trial. These data showed that patients treated with
Genasense® plus
chemotherapy who achieved either a complete response (CR) or a partial response
(PR) also achieved a statistically significant increase in survival with
chemotherapy alone (median = 56 months vs. 38 months, respectively). After 5
years of follow-up, 22 of 49 (45%) responders in the Genasense® group
were alive compared with 13 of 54 (24%) responders in the chemotherapy-only
group (hazard ratio = 0.6; P = 0.038). Moreover, with 5 years of follow-up, 12
of 20 patients (60%) in the Genasense® group
who achieved CR were alive, 5 of these patients remained in continuous CR
without relapse, and 2 additional patients had relapsed but had not required
additional therapy. By contrast, only 3 of 8 CR patients in the
chemotherapy-only group were alive, all 3 had relapsed, and all 3 had required
additional anti-leukemic treatment.
In March
2009, the FDA’s Center for Drug Evaluation and Research (CDER) decided that
available data were still insufficient to support approval of Genasense® in CLL,
and the Agency recommended conducting another clinical trial. We have made no
decision whether to conduct this study or whether to pursue this application
without further study for regulatory approval in other territories.
As with
melanoma, we believe the clinical activity in CLL, as well as in non-Hodgkin’s
lymphoma and other types of cancer, should be explored with additional clinical
research. We are currently reassessing whether to proceed with such
studies.
NHL
Several
trials have shown clinical activity of Genasense® in
patients with non-Hodgkin’s lymphoma (NHL). We would like to conduct additional
clinical studies in patients with NHL to test whether Genasense® can be
approved in this indication.
Tesetaxel
In March
2008, we obtained an exclusive worldwide license for tesetaxel, a novel taxane
compound that is taken by mouth. Tesetaxel has completed Phase 2 trials in a
number of cancer types, and the drug has shown definite evidence of antitumor
activity in gastric cancer and breast cancer. Tesetaxel also appears to be
associated with a lower incidence of peripheral nerve damage, a common side
effect of taxanes that limits the maximum amount of these drugs that can be
given to patients. In January 2009, we announced initiation of a new clinical
trial with tesetaxel to examine the clinical pharmacology of the drug over a
narrow dosing range around the established Phase 2 dose. We expect accrual to
the initial phase of this study to be complete in December 2009.
We have
received approval by FDA for designation of tesetaxel as an Orphan Drug for
treatment of patients with advanced melanoma. Our current
priorities for clinical testing of tesetaxel includes the evaluation of safety
and efficacy in patients with advanced gastric cancer, advanced melanoma, and
prostate cancer. Other disease priorities for clinical research include cancers
of the bladder and breast, among other disorders. Maintenance of the license
from Daiichi Sankyo requires certain milestone payments. If such payments are
not made, Daiichi Sankyo may elect to terminate the license.
Oral
Gallium-Containing Compounds
Our other
pipeline products include novel oral formulations of gallium-containing
compounds. We completed a single-dose Phase 1 study of an initial formulation of
a new drug known as “G4544(a)”. We have formulated a modified version of this
compound, known as “G4544(b)”, in order to test whether this compound will
improve certain pharmaceutical characteristics.
If we are
able to identify a clinically and commercially acceptable formulation of an oral
gallium-containing compound, we may pursue a 505(b)(2) strategy to establish
bioequivalence to our marketed product, Ganite®, for its
initial regulatory approval. We believe a drug of this type may also be broadly
useful for treatment of other diseases associated with accelerated bone loss,
such as bone metastases, Paget’s disease and osteoporosis. In addition, new uses
of gallium-containing compounds have been identified for treatment of certain
infectious diseases.
Ganite®
We are
currently marketing Ganite® in the
U.S., which is an intravenous formulation of gallium, for treatment of
cancer-related hypercalcemia that is resistant to hydration.
About
Us
Genta was
incorporated in Delaware on February 4, 1988. Our principal executive offices
are located at 200 Connell Drive, Berkeley Heights, New Jersey 07922. Our
telephone number is (908) 286-9800. The address of our website is www.Genta.com.
Information on our website is not part of this prospectus. Our website address
is included in this prospectus as an inactive technical reference
only.
SUMMARY
OF THE OFFERING
Common
stock offered by selling stockholders
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|
•
54,713,329 shares of our common stock, including 37,391,688 shares issued
as part of the July 7, 2009 and September 4, 2009 financings, 1,215,000
shares issuable upon the exercise of the July 2009 Warrants, 14,574,141
shares issuable upon the conversion of the July 2009 Notes and 1,532,500
shares issuable upon the conversion of the September 2009
Notes.
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|
|
|
Use
of proceeds
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|
We
will not receive any proceeds from the sale of the shares of our common
stock by the selling stockholders other than as a result of the exercise
of the July 2009 Warrants for cash held by the selling
stockholders.
|
|
|
|
Trading
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|
Our
common stock is traded on the OTC Bulletin Board under the symbol
“GETA.OB.”
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|
Risk
Factors
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|
You
should read the “Risk Factors” section of this prospectus for a discussion
of factors to consider carefully before deciding to invest in our common
stock.
|
SUMMARY
SELECTED FINANCIAL INFORMATION
The
following table summarizes our selected financial information. You should read
the selected financial information together with our consolidated financial
statements and the related notes appearing at the end of this prospectus, and
the “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” section and other financial information included in this
prospectus.
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|
Nine
months
ended
September
30,
(unaudited)
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|
|
Year ended
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Consolidated
Statements of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands except per share
amounts) :
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
sales — net
|
|
$
|
180
|
|
|
$
|
363
|
|
|
$
|
580
|
|
|
$
|
708
|
|
Costs
of goods sold
|
|
|
12
|
|
|
|
102
|
|
|
|
90
|
|
|
|
108
|
|
Operating
expenses
|
|
|
24,854
|
|
|
|
33,410
|
|
|
|
26,116
|
|
|
|
59,764
|
|
Amortization
of deferred financing costs and debt discount
|
|
|
(22,362
|
)
|
|
|
(11,229
|
)
|
|
|
—
|
|
|
|
—
|
|
Fair
value — conversion feature liability
|
|
|
(19,040
|
)
|
|
|
(460,000
|
)
|
|
|
—
|
|
|
|
—
|
|
Fair
value — warrant liability
|
|
|
(7,655
|
)
|
|
|
(2,000
|
)
|
|
|
—
|
|
|
|
—
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|
All
other (expense)/income -net
|
|
|
(837
|
)
|
|
|
(1,435
|
)
|
|
|
836
|
|
|
|
1,454
|
|
Loss
before income taxes
|
|
|
(74,580
|
)
|
|
|
(507,813
|
)
|
|
|
(24,790
|
)
|
|
|
(57,710
|
)
|
Income
tax benefit
|
|
|
-
|
|
|
|
1,975
|
|
|
|
1,470
|
|
|
|
929
|
|
Net
loss
|
|
$
|
(74,580
|
)
|
|
$
|
(505,838
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)
|
|
$
|
(23,320
|
)
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|
$
|
(56,781
|
)
|
Net
loss per basic and diluted common share *
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|
$
|
(0.98
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)
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|
$
|
(455.09
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)
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|
$
|
(39.36
|
)
|
|
$
|
(125.88
|
)
|
Common
shares used in computing net loss per basic and diluted share
*
|
|
|
75,850
|
|
|
|
1,112
|
|
|
|
592
|
|
|
|
451
|
|
*
|
all figures
prior to June 26, 2009 have been retroactively adjusted to reflect a
1-for-50 reverse stock split effected in June
2009
|
|
|
September 30, 2009
(unaudited, )
|
|
|
December 31, 2008
|
|
Balance
Sheet Data
|
|
|
|
|
|
|
(in
thousands except per share amounts):
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
7,383 |
|
|
$ |
4,908 |
|
Working
capital deficiency
|
|
|
(4,010 |
) |
|
|
(5,220 |
) |
Total
assets
|
|
|
18,853 |
|
|
|
12,693 |
|
Total
stockholders’ equity/(deficit)
|
|
|
3,494 |
|
|
|
(4,864 |
) |
RISK
FACTORS
You should carefully consider the
following risks and all of the other information set forth in this
prospectus before deciding to invest in our securities. The risks described
below are not the only ones facing us. Additional risks not presently known
to us or that we currently deem immaterial may also impair our business
operations.
If any of the following risks
actually occurs, our business, financial condition or results of operations
would likely suffer. In such case, the market price of our common stock
would likely decline due to the occurrence of any of these risks, and you may lose
all or part of your investment.
Risks
Related to Our Business
Our
business will suffer if we fail to obtain timely funding.
Our
operations to date have required significant cash expenditures. Our future
capital requirements will depend on the results of our research and development
activities, preclinical studies and clinical trials, competitive and
technological advances, and regulatory activities of the FDA and other
regulatory authorities. In order to commercialize our products, seek new product
candidates and continue our research and development programs, we will need to
raise additional funds.
On June
9, 2008, we placed $20 million of senior secured convertible notes, or the 2008
Notes, with certain institutional and accredited investors. The 2008 Notes bear
interest at an annual rate of 15% payable at quarterly intervals in other 2008
Notes to the holder, and are presently convertible into shares of Genta common
stock at a conversion rate of 10,000 shares of common stock for every $1,000.00
of principal. Certain members of our senior management participated in this
offering. The 2008 Notes are secured by a first lien on all of our
assets.
On April
2, 2009, we placed approximately $6 million of senior secured convertible notes,
or the April 2009 Notes, and corresponding warrants to purchase common stock.
The April 2009 Notes bear interest at an annual rate of 8% payable semi-annually
in other April 2009 Notes to the holder, and are convertible into shares of our
common stock at a conversion rate of 10,000 shares of common stock for every
$1,000.00 of principal amount outstanding.
On July
7, 2009, we entered into a securities purchase agreement with certain accredited
institutional investors to place up to $10 million in aggregate principal amount
of units consisting of (i) 70% unsecured subordinated convertible notes, or the
July 2009 Notes, and (ii) 30% common stock, or the July 2009
financing. In connection with the sale of the units, we also issued
to the investors two-year warrants to purchase common stock in an amount equal
to 25% of the number of shares of common stock issuable upon conversion of the
July 2009 Notes purchased by each investor, or the July 2009
Warrants. We closed on $3 million of such July 2009 Notes, common
stock and July 2009 Warrants on July 7, 2009.
On August
6, 2009 and August 24, 2009, the Company entered into amendment agreements
whereby, among other things, certain accredited institutional investors who were
parties to the July 2009 securities purchase agreement agreed to permit us to
raise up to $10 million through the sale of additional shares of common stock,
July 2009 Notes and warrants at an additional closing under the July 7, 2009
Securities Purchase Agreement, increasing the aggregate amount that we may raise
to $13 million, and delaying our obligations to file a registration statement
covering the shares of common stock and shares of common stock underlying the
July 2009 Notes and warrants that were issued on July 7, 2009.
On
September 4, 2009, the Company entered into a consent and amendment agreement
whereby, among other things, certain accredited institutional investors who were
parties to the July 2009 securities purchase agreement agreed to decrease the
amount we could raise under the July 2009 securities purchase agreement to $10
million in the aggregate and delay our obligation to file a registration
statement covering the shares of common stock and shares of common stock
underlying the July 2009 Notes and July 2009 Warrants. On that same
date, we closed on $7 million of additional July 2009 Notes, common stock and
July 2009 Warrants.
Also
on September 4, 2009, the Company entered into a securities purchase agreement
with certain accredited institutional investors, pursuant to which we issued $3
million of units consisting of (i) 70% September 2009 Notes, and (ii) 30% common
stock, or the September 2009 financing. The September 2009 Notes bear
interest at an annual rate of 8% payable at semi-annual intervals in other
September 2009 Notes to the holder, and are convertible into shares of our
common stock at a conversion rate of 10,000 shares of common stock for every
$1,000.00 of principal. In connection with the sale of the units, we also issued
to the investors two- year warrants to purchase common stock in an amount equal
to 25% of the number of shares of common stock issuable upon conversion of the
September 2009 Notes purchased by each investor, or the September 2009
Warrants. Pursuant to the terms of the securities purchase agreement,
the investors had four business days from the date of the agreement to sign the
agreement and provide their respective investment to the
Company. Certain investors chose not to participate, and therefore,
all of the investors who chose to participate in the September 2009 financing
agreed to a revised allocation of the $3 million investment among the
investors.
We
will need to obtain more funding in the future through collaborations or other
arrangements with research institutions and corporate partners or public and
private offerings of our securities, including debt or equity financing. We may
not be able to obtain adequate funds for our operations from these sources when
needed or on acceptable terms. Future collaborations or similar arrangements may
require us to license valuable intellectual property to, or to share substantial
economic benefits with, our collaborators. If we raise additional capital by
issuing additional equity or securities convertible into equity, our
stockholders may experience dilution and our share price may decline. Any debt
financing may result in restrictions on our spending.
If
we are unable to raise additional funds, we will need to do one or more of the
following:
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delay, scale back or eliminate
some or all of our research and product development
programs;
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license third parties to develop
and commercialize products or technologies that we would otherwise seek to
develop and commercialize
ourselves;
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attempt to sell our
company;
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Presently,
with no further financing, management projects that we will run out of funds in
the second quarter of 2010. If we are unable to raise additional
financing, we could be required to reduce our spending plans, reduce our
workforce, license to others products or technologies we would otherwise seek to
commercialize ourselves and sell certain assets. There can be no assurance that
we can obtain financing, if at all, on terms acceptable to us.
We
may be unsuccessful in our efforts to obtain approval from the FDA or EMEA and
commercialize Genasense ® or our
other pharmaceutical products.
The
commercialization of our pharmaceutical products involves a number of
significant challenges. In particular, our ability to commercialize products,
such as tesetaxel, an oral gallium compound and Genasense ® ,
depends, in large part, on the success of our clinical development programs, our
efforts to obtain regulatory approvals and our sales and marketing efforts
directed at physicians, patients and third-party payors. A number of factors
could affect these efforts, including:
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our ability to demonstrate
clinically that our products are useful and safe in particular
indications;
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delays or refusals by regulatory
authorities in granting marketing
approvals;
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our limited financial resources
and sales and marketing experience relative to our
competitors;
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actual and perceived differences
between our products and those of our
competitors;
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the availability and level of
reimbursement for our products by third-party
payors;
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incidents of adverse reactions to
our products;
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side effects or misuse of our
products and the unfavorable publicity that could result;
and
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the occurrence of manufacturing,
supply or distribution
disruptions.
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We
cannot assure you that our product candidates will receive FDA or EMEA approval.
For example, the recent results in the Phase 3 AGENDA trial of Genasense® in
advanced melanoma will not be sufficient to apply for a NDA in the U.S. If
extended followup of the AGENDA trial is possible and shows a statistically
significant benefit for patients, we may be able to submit a NDA after that
result is known. However, our prior regulatory applications for Genasense® in
melanoma were unsuccessful. Our NDA for Genasense® plus
chemotherapy in patients with relapsed or refractory CLL was also
unsuccessful.
Our
financial condition and results of operations have been and will continue to be
significantly affected by FDA and EMEA action with respect to Genasense®. Any
adverse outcomes with respect to FDA and/or EMEA approvals could negatively
impact our ability to obtain additional funding or identify potential
partners.
Ultimately,
our efforts may not prove to be as effective as those of our competitors. In the
U.S. and elsewhere, our products will face significant competition. The
principal conditions on which our product development efforts are focused and
some of the other disorders for which we are conducting additional studies, are
currently treated with several drugs, many of which have been available for a
number of years or are available in inexpensive generic forms. Thus, even if we
obtain regulatory approvals, we will need to demonstrate to physicians, patients
and third-party payors that the cost of our products is reasonable and
appropriate in light of their safety and efficacy, the price of competing
products and the relative health care benefits to the patient. If we are unable
to demonstrate that the costs of our products are reasonable and appropriate in
light of these factors, we will likely be unsuccessful in commercializing our
products.
Recurring
losses and negative cash flows from operations raise substantial doubt about our
ability to continue as a going concern and we may not be able to continue
as a going concern.
Our
recurring losses from operations and negative cash flows from operations raise
substantial doubt about our ability to continue as a going concern and as a
result, our independent registered public accounting firm included an
explanatory paragraph in its report on our consolidated financial statement for
the year ended December 31, 2008 with respect to this uncertainty. Substantial
doubt about our ability to continue as a going concern may create negative
reactions to the price of the common shares of our stock and we may have a more
difficult time obtaining financing.
We
have prepared our financial statements on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities and
commitments in the normal course of business. The financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or amounts of liabilities that might be necessary should
we be unable to continue in existence.
We
will not be able to commercialize our product candidates if our preclinical
studies do not produce successful results or if our clinical trials do not
demonstrate safety and efficacy in humans.
Our
success will depend on the success of our currently ongoing clinical trials and
subsequent clinical trials that have not yet begun. It may take several years to
complete the clinical trials of a product, and a failure of one or more of our
clinical trials can occur at any stage of testing. We believe that the
development of each of our product candidates involves significant risks at each
stage of testing. If clinical trial difficulties and failures arise, our product
candidates may never be approved for sale or become commercially viable. We do
not believe that any of our product candidates have alternative uses if our
current development activities are unsuccessful.
There
are a number of difficulties and risks associated with clinical trials. These
difficulties and risks may result in the failure to receive regulatory approval
to sell our product candidates or the inability to commercialize any of our
product candidates. The possibility exists that:
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we may discover that a product
candidate does not exhibit the expected therapeutic results in humans, may
cause harmful side effects or have other unexpected characteristics that
may delay or preclude regulatory approval or limit commercial use if
approved;
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the results from early clinical
trials may not be statistically significant or predictive of results that
will be obtained from expanded, advanced clinical
trials;
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institutional review boards or
regulators, including the FDA, may hold, suspend or terminate our clinical
research or the clinical trials of our product candidates for various
reasons, including noncompliance with regulatory requirements or if, in
their opinion, the participating subjects are being exposed to
unacceptable health risks;
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subjects may drop out of our
clinical trials;
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our preclinical studies or
clinical trials may produce negative, inconsistent or inconclusive
results, and we may decide, or regulators may require us, to conduct
additional preclinical studies or clinical trials;
and
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the cost of our clinical trials
may be greater than we currently
anticipate.
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In
October 2009, we announced that AGENDA did not show a statistically significant
benefit for its co-primary endpoint of progression-free
survival. Secondary endpoints of overall response rate and disease
control rate (which includes complete and partial responses, plus stable disease
greater than 3 months duration) also did not show a statistically significant
benefit. According to the prespecified analysis plan, the statistical
significance of durable response, (a secondary endpoint that measures the
proportion of patients who achieved a complete or partial response that lasts
greater than 6 months), is too early to evaluate. However, the observed
differences in progression-free survival, overall response, disease control and
durable response all numerically favored the group that received Genasense®.
Overall
survival, the other co-primary endpoint in AGENDA, is too early to evaluate, as
prospectively specified. An analysis for futility, which was defined
as greater than 50% conditional power to observe a statistically significant
benefit of Genasense® (P < 0.05) under the prospectively specified hazard
ratio of 0.69, was conducted for the co-primary endpoint of overall
survival. AGENDA passed this futility analysis, and an Independent
Data Monitoring Committee has recommended that the trial continue to completion
for the determination of the overall survival endpoint. The safety profile of
Genasense® in AGENDA was consistent with prior studies. Pending adequacy of
financial resources and other contingencies noted herein, Genta currently
intends to continue the AGENDA trial in order to determine whether the addition
of Genasense to dacarbazine is associated with a statistically significant
increase in overall survival. If that association is demonstrated, we
currently expect that Genta would submit regulatory applications for the
marketing approval of Genasense® on a worldwide basis.
We
cannot assure you that our ongoing preclinical studies and clinical trials will
produce successful results in order to support regulatory approval of
Genasense® in any
territory or for any indication. Failure to obtain approval, or a substantial
delay in approval of Genasense® for
these or any other indications would have a material adverse effect on our
results of operations and financial condition.
We
have a significant amount of debt. Our substantial indebtedness could adversely
affect our business, financial condition and results of operations and our
ability to meet our payment obligations under the notes and our other
debt.
We
have a significant amount of debt. As of September 30, 2009, we had a
face amount of debt outstanding of $15.3 million, consisting of the face value
of 2008 Notes of $2.2 million, the face value of April 2009 Notes of $5.4
million, the face value of July 2009 Notes of $0.7 million and the face value of
September 2009 Notes of $7.0 million.
Our
aggregate level of debt could have significant consequences on our future
operations, including:
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making it more difficult for us
to meet our payment and other obligations under our outstanding
debt;
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resulting in an event of default
if we fail to comply with the restrictive covenants contained in our debt
agreements, which could result in all of our debt becoming due and payable
and, in the case of an event of default under our secured debt, could
permit the lenders to foreclose on our assets securing such
debt;
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limiting our flexibility in
planning for, or reacting to, and increasing our vulnerability to, changes
in our business, the industry in which we operate and the general economy;
and
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placing us at a competitive
disadvantage compared to our competitors that have less debt or are less
leveraged.
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Any of
the above-listed factors could have an adverse effect on our business, financial
condition and results of operations and our ability to meet our payment
obligations under the notes and our other debt.
Our
substantial amount of secured debt may prevent us from obtaining additional
financing in the future or make the terms of securing such additional financing
more onerous to us.
The 2008
Notes and April 2009 Notes are secured by a first priority lien on our assets
and the July 2009 Notes and September 2009 Notes are unsecured. While the terms
or availability of additional capital is always uncertain, should we need to
obtain additional financing in the future, because of the existing liens on our
assets, it may be even more difficult for us to do so. Potential future lenders
may be unwilling to provide financing on an unsecured basis and may not agree to
share the collateral with our existing secured debt. Alternatively, if we are
able to raise additional financing in the future, the terms of any such
financing may be onerous to us. This potential inability to obtain borrowings or
our obtaining borrowings on unfavorable terms could negatively impact our
operations and impair our ability to maintain sufficient working
capital.
We
may not have the ability to repay the principal on our convertible notes when
due.
Our
convertible notes mature on various dates in 2010 through 2012, and bear
interest payable quarterly or semi-annually at rates of 8.00% or 15.00% per
annum. Absent additional financing, we will likely not have sufficient funds to
pay the principal upon maturity or upon any acceleration thereof. If we fail to
pay principal on our convertible notes when due, we will be in default under our
debt agreements which could have an adverse effect on our business, financial
condition and results of operations.
We
have relied on and continue to rely on our contractual collaborative
arrangements with research institutions and corporate partners for development
and commercialization of our products. Our business could suffer if we are not
able to enter into suitable arrangements, maintain existing relationships, or if
our collaborative arrangements are not successful in developing and
commercializing products.
We have
entered into collaborative relationships relating to the conduct of clinical
research and other research activities in order to augment our internal research
capabilities and to obtain access to specialized knowledge and expertise. Our
business strategy depends in part on our continued ability to develop and
maintain relationships with leading academic and research institutions and with
independent researchers. The competition for these relationships is intense, and
we can give no assurances that we will be able to develop and maintain these
relationships on acceptable terms.
We also
seek strategic alliances with corporate partners, primarily pharmaceutical and
biotechnology companies, to help us develop and commercialize drugs. Various
problems can arise in strategic alliances. A partner responsible for conducting
clinical trials and obtaining regulatory approval may fail to develop a
marketable drug. A partner may decide to pursue an alternative strategy or focus
its efforts on alliances or other arrangements with third parties. A partner
that has been granted marketing rights for a certain drug within a geographic
area may fail to market the drug successfully. Consequently, strategic alliances
that we may enter into may not be scientifically or commercially
successful.
We cannot
control the resources that any collaborator may devote to our products. Any of
our present or future collaborators may not perform their obligations as
expected. These collaborators may breach or terminate their agreements with us,
for instance upon changes in control or management of the collaborator, or they
may otherwise fail to conduct their collaborative activities successfully and in
a timely manner.
In
addition, our collaborators may elect not to develop products arising out of our
collaborative arrangements or to devote sufficient resources to the development,
regulatory approval, manufacture, marketing or sale of these products. If any of
these events occur, we may not be able to develop or commercialize our
products.
An
important part of our strategy involves conducting multiple product development
programs. We may pursue opportunities in fields that conflict with those of our
collaborators. In addition, disagreements with our collaborators could develop
over rights to our intellectual property. The resolution of such conflicts and
disagreements may require us to relinquish rights to our intellectual property
that we believe we are entitled to. In addition, any disagreement or conflict
with our collaborators could reduce our ability to obtain future collaboration
agreements and negatively impact our relationship with existing collaborators.
Such a conflict or disagreement could also lead to delays in collaborative
research, development, regulatory approval or commercialization of various
products or could require or result in litigation or arbitration, which would be
time consuming and expensive, divert the attention of our management and could
have a significant negative impact on our business, financial condition and
results of operations.
We
anticipate that we will incur additional losses and we may never be
profitable.
We
have never been profitable. We have incurred substantial annual operating losses
associated with ongoing research and development activities, preclinical
testing, clinical trials, regulatory submissions and manufacturing activities.
From the period since our inception to September 30, 2009, we have incurred a
cumulative deficit of $1,018.7 million. We may never achieve revenue sufficient
for us to attain profitability. Achieving profitability is unlikely unless
Genasense ® receives
approval from the FDA or EMEA for commercial sale in one or more
indications.
Our
business depends heavily on a small number of products.
We
currently market and sell one product, Ganite® and the
principal patent covering its use for the approved indication expired in April
2005. If Genasense® or our
other pipeline products are not approved, if approval is significantly delayed,
or if in the event of approval these products are commercially unsuccessful,
sales of other products may not be sufficient to offset this loss of potential
revenue.
To
diversify our product line in the long term, it will be important for us to
identify suitable technologies and products for acquisition or licensing and
development. If we are unable to identify suitable technologies and products, or
if we are unable to acquire or license products we identify, we may be unable to
diversify our product line and to generate long-term growth.
We
may be unable to obtain or enforce patents, other proprietary rights and
licenses to protect our business; we could become involved in litigation
relating to our patents or licenses that could cause us to incur additional
costs and delay or prevent our introduction of new drugs to market.
Our
success will depend to a large extent on our ability to:
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obtain U.S. and foreign patent or
other proprietary protection for our technologies, products and
processes;
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preserve trade secrets;
and
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operate without infringing the
patent and other proprietary rights of third
parties.
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standards relating to the validity of patents covering pharmaceutical and
biotechnological inventions and the scope of claims made under these types of
patents are still developing, and they involve complex legal and factual
questions. As a result, our ability to obtain and enforce patents that protect
our drugs is highly uncertain. If we are unable to obtain and enforce patents
and licenses to protect our drugs, our business, results of operations and
financial condition could be adversely affected.
We
hold numerous U.S., foreign and international patents covering various aspects
of our technology, which include novel compositions of matter, methods of
large-scale synthesis and methods of controlling gene expression and methods of
treating disease. In the future, however, we may not be successful in obtaining
additional patents despite pending or future applications. Moreover, our current
and future patents may not be sufficient to protect us against competitors who
use similar technology. Additionally, our patents, the patents of our business
partners and the patents for which we have obtained licensing rights may be
challenged, narrowed, invalidated or circumvented. Furthermore, rights granted
under our patents may not be broad enough to cover commercially valuable drugs
or processes, and therefore, may not provide us with sufficient competitive
advantage with respect thereto.
The
pharmaceutical and biotechnology industries have been greatly affected by
time-consuming and expensive litigation regarding patents and other intellectual
property rights. We may be required to commence, or may be made a party to,
litigation relating to the scope and validity of our intellectual property
rights or the intellectual property rights of others. Such litigation could
result in adverse decisions regarding the patentability of our inventions and
products, the enforceability, validity or scope of protection offered by our
patents or our infringement of patents held by others. Such decisions could make
us liable for substantial money damages, or could bar us from the manufacture,
sale or use of certain products. Moreover, an adverse decision may also compel
us to seek a license from a third party. The costs of any license may be
prohibitive and we may not be able to enter into any required licensing
arrangement on terms acceptable to us.
The
cost to us of any litigation or proceeding relating to patent or license rights,
even if resolved in our favor, could be substantial. Some of our competitors may
be able to sustain the costs of complex patent or licensing litigation more
effectively than we can because of their substantially greater resources.
Uncertainties resulting from the initiation and continuation of any patent or
related litigation could have a material adverse effect on our ability to
compete in the marketplace.
We
also may be required to participate in interference proceedings declared by the
U.S. Patent and Trademark Office in opposition or similar proceedings before
foreign patent offices and in International Trade Commission proceedings aimed
at preventing the importation of drugs that would compete unfairly with our
drugs. These types of proceedings could cause us to incur considerable
costs.
The
principal patent covering the use of Ganite® for its
approved indication, including Hatch-Waxman extensions, expired in April
2005.
Genta’s
patent portfolio includes approximately 65 granted patents and 66 pending
applications in the U.S. and foreign countries. We endeavor to seek appropriate
U.S. and foreign patent protection on our oligonucleotide
technology.
We
have licensed ten U.S. patents relating to Genasense® and its
backbone chemistry that expire between 2008 and 2015. Corresponding patent
applications have been filed in three foreign countries. We also own five U.S.
patent applications relating to methods of using Genasense ® expected
to expire in 2020 and 2026, with approximately 50 corresponding foreign patent
applications and granted patents.
Most
of our products are in an early stage of development, and we may never receive
regulatory approval for these products.
Most
of our resources have been dedicated to the research and development of
potential antisense pharmaceutical products such as Genasense®, based
upon oligonucleotide technology. While we have demonstrated the activity of
antisense oligonucleotide technology in model systems in vitro and in animals,
Genasense® is our
only antisense product to have been tested in humans. Several of our other
technologies that serve as a possible basis for pharmaceutical products are only
in preclinical testing. Results obtained in preclinical studies or early
clinical investigations are not necessarily indicative of results that will be
obtained in extended human clinical trials. Our products may prove to have
undesirable and unintended side effects or other characteristics that may
prevent our obtaining FDA or foreign regulatory approval for any indication. In
addition, it is possible that research and discoveries by others will render our
oligonucleotide technology obsolete or noncompetitive.
Clinical
trials are costly and time consuming and are subject to delays; our business
would suffer if the development process relating to our products were subject to
meaningful delays.
Clinical
trials are very costly and time-consuming. The length of time required to
complete a clinical study depends upon many factors, including but not limited
to the size of the patient population, the ability of patients to get to the
site of the clinical study, the criteria for determining which patients are
eligible to join the study and other issues. Delays in patient enrollment and
other unforeseen developments could delay completion of a clinical study and
increase its costs, which could also delay any eventual commercial sale of the
drug that is the subject of the clinical trial.
Our
commencement and rate of completion of clinical trials also may be delayed by
many other factors, including the following:
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inability to obtain sufficient
quantities of materials for use in clinical
trials;
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inability to adequately monitor
patient progress after
treatment;
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unforeseen safety
issues;
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the failure of the products to
perform well during clinical trials;
and
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government or regulatory
delays.
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If
we fail to obtain the necessary regulatory approvals, we cannot market and sell
our products in the United States.
The
FDA imposes substantial pre-market approval requirements on the introduction of
pharmaceutical products. These requirements involve lengthy and detailed
preclinical and clinical testing and other costly and time-consuming procedures.
Satisfaction of these requirements typically takes several years or more
depending upon the type, complexity and novelty of the product. We cannot apply
for FDA approval to market any of our products under development until
preclinical 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 you that the FDA will ever approve the use of our products that
are under development. If the patient populations for which our products are
approved are not sufficiently broad, or if approval is accompanied by
unanticipated labeling restrictions, the commercial success of our products
could be limited and our business, results of operations and financial condition
could consequently be materially adversely affected.
If
the third party manufacturers upon which we rely fail to produce our products in
the volumes that we require on a timely basis, or to comply with stringent
regulations applicable to pharmaceutical drug manufacturers, we may face delays
in the commercialization of, or be unable to meet demand for, our products and
may lose potential revenues.
We
do not manufacture any of our products or product candidates and we do not plan
to develop any capacity to do so. We have contracted with third-party
manufacturers to manufacture Ganite® and
Genasense®. The
manufacture of pharmaceutical products requires significant expertise and
capital investment, including the development of advanced manufacturing
techniques and process controls. Manufacturers of pharmaceutical products often
encounter difficulties in production, especially in scaling up initial
production. These problems include difficulties with production costs and
yields, quality control and assurance and shortages of qualified personnel, as
well as compliance with strictly enforced federal, state and foreign
regulations. Our third-party manufacturers may not perform as agreed or may
terminate their agreements with us.
In
addition to product approval, any facility in which Genasense® is
manufactured or tested for its ability to meet required specifications must be
approved by the FDA and/or the EMEA before it can manufacture Genasense® .
Failure of the facility to be approved could delay the approval of
Genasense®.
We
do not currently have alternate manufacturing plans in place. The number of
third-party manufacturers with the expertise, required regulatory approvals and
facilities to manufacture bulk drug substance on a commercial scale is limited,
and it would take a significant amount of time to arrange for alternative
manufacturers. If we need to change to other commercial manufacturers, the FDA
and comparable foreign regulators must approve these manufacturers’ facilities
and processes prior to our use, which would require new testing and compliance
inspections, and the new manufacturers would have to be educated in or
independently develop the processes necessary for the production of our
products.
Any
of these factors could cause us to delay or suspend clinical trials, regulatory
submissions, required approvals or commercialization of our products or product
candidates, entail higher costs and result in our being unable to effectively
commercialize our products. Furthermore, if our third-party manufacturers fail
to deliver the required commercial quantities of bulk drug substance or finished
product on a timely basis and at commercially reasonable prices, and we were
unable to promptly find one or more replacement manufacturers capable of
production at a substantially equivalent cost, in substantially equivalent
volume and on a timely basis, we would likely be unable to meet demand for our
products and we would lose potential revenues.
Even
if we obtain regulatory approval, we will be subject to ongoing regulation, and
any failure by us or our manufacturers to comply with such regulation could
suspend or eliminate our ability to sell our products.
Ganite®,
Genasense® (if it
obtains regulatory approval), and any other product we may develop will be
subject to ongoing regulatory oversight, primarily by the FDA. Failure to comply
with post-marketing requirements, such as maintenance by us or by the
manufacturers of our products of current Good Manufacturing Practices as
required by the FDA, or safety surveillance of such products or lack of
compliance with other regulations could result in suspension or limitation of
approvals or other enforcement actions. Current Good Manufacturing Practices are
FDA regulations that define the minimum standards that must be met by companies
that manufacture pharmaceuticals and apply to all drugs for human use, including
those to be used in clinical trials, as well as those produced for general sale
after approval of an application by the FDA. These regulations define
requirements for personnel, buildings and facilities, equipment, control of raw
materials and packaging components, production and process controls, packaging
and label controls, handling and distribution, laboratory controls and
recordkeeping. Furthermore, the terms of any product candidate approval,
including the labeling content and advertising restrictions, may be so
restrictive that they could adversely affect the marketability of our product
candidates. Any such failure to comply or the application of such restrictions
could limit our ability to market our product candidates and may have a material
adverse effect on our business, results of operations and financial condition.
Such failures or restrictions may also prompt regulatory recalls of one or more
of our products, which could have material and adverse effects on our
business.
The
raw materials for our products are produced by a limited number of suppliers,
and our business could suffer if we cannot obtain needed quantities at
acceptable prices and qualities.
The raw
materials that we require to manufacture our drugs, particularly
oligonucleotides and taxanes, 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 an adequate supply of materials at an acceptable price and
quality, we could be materially adversely affected.
If
third-party payors do not provide coverage and reimbursement for use of our
products, we may not be able to successfully commercialize our
products.
Our
ability to commercialize drugs successfully will depend in part on the extent to
which various third-party payors are willing to reimburse patients for the costs
of our drugs and related treatments. These third-party payors include government
authorities, private health insurers and other organizations, such as health
maintenance organizations. Third-party payors often challenge the prices charged
for medical products and services. Accordingly, if less costly drugs are
available, third-party payors may not authorize or may limit reimbursement for
our drugs, even if they are safer or more effective than the alternatives. In
addition, the federal government and private insurers have changed and continue
to consider ways to change the manner in which health care products and services
are provided and paid for in the United States. In particular, these third-party
payors are increasingly attempting to contain health care costs by limiting both
coverage and the level of reimbursement for new therapeutic products. In the
future, it is possible that the government may institute price controls and
further limits on Medicare and Medicaid spending. These controls and limits
could affect the payments we collect from sales of our products.
Internationally, medical reimbursement systems vary significantly, with some
countries requiring application for, and approval of, government or third-party
reimbursement. In addition, some medical centers in foreign countries have fixed
budgets, regardless of levels of patient care. Even if we succeed in bringing
therapeutic products to market, uncertainties regarding future health care
policy, legislation and regulation, as well as private market practices, could
affect our ability to sell our products in quantities, or at prices, that will
enable us to achieve profitability.
Our
business exposes us to potential product liability that may have a negative
effect on our financial performance and our business generally.
The
administration of drugs to humans, whether in clinical trials or commercially,
exposes us to potential product and professional liability risks, which are
inherent in the testing, production, marketing and sale of human therapeutic
products. Product liability claims can be expensive to defend and may result in
large judgments or settlements against us, which could have a negative effect on
our financial performance and materially and adversely affect our business. We
maintain product liability insurance (subject to various deductibles), but our
insurance coverage may not be sufficient to cover claims. Furthermore, we cannot
be certain that we will always be able to maintain or increase our insurance
coverage at an affordable price. Even if a product liability claim is not
successful, the adverse publicity and time and expense of defending such a claim
may interfere with or adversely affect our business and financial
performance.
We
may incur a variety of costs to engage in future acquisitions of companies,
products or technologies, and the anticipated benefits of those acquisitions may
never be realized.
As a part
of our business strategy, we may make acquisitions of, or significant
investments in, complementary companies, products or technologies, although no
significant acquisition or investments are currently pending. Any future
acquisitions would be accompanied by risks such as:
|
·
|
difficulties in assimilating the
operations and personnel of acquired
companies;
|
|
·
|
diversion of our management’s
attention from ongoing business
concerns;
|
|
·
|
our potential inability to
maximize our financial and strategic position through the successful
incorporation of acquired technology and rights to our products and
services;
|
|
·
|
additional expense associated
with amortization of acquired
assets;
|
|
·
|
maintenance of uniform standards,
controls, procedures and policies;
and
|
|
·
|
impairment of existing
relationships with employees, suppliers and customers as a result of the
integration of new management
personnel.
|
We
cannot guarantee that we will be able to successfully integrate any business,
products, technologies or personnel that we might acquire in the future, and our
failure to do so could harm our business.
We
face substantial competition from other companies and research institutions that
are developing similar products, and we may not be able to compete
successfully.
In
many cases, our products under development will be competing with existing
therapies for market share. In addition, a number of companies are pursuing the
development of antisense technology and controlled-release formulation
technology and the development of pharmaceuticals utilizing such technologies.
We compete with fully integrated pharmaceutical companies that have more
substantial experience, financial and other resources and superior expertise in
research and development, manufacturing, testing, obtaining regulatory
approvals, marketing and distribution. Smaller companies may also prove to be
significant competitors, particularly through their collaborative arrangements
with large pharmaceutical companies or academic institutions. Furthermore,
academic institutions, governmental agencies and other public and private
research organizations have conducted and will continue to conduct research,
seek patent protection and establish arrangements for commercializing products.
Such products may compete directly with any products that may be offered by
us.
Our
competition will be determined in part by the potential indications for which
our products are developed and ultimately approved by regulatory authorities.
For certain of our potential products, an important factor in competition may be
the timing of market introduction of our or our competitors’ products.
Accordingly, the relative speed with which we can develop products, complete the
clinical trials and approval processes and supply commercial quantities of the
products to the market are expected to be important competitive factors. We
expect that competition among products approved for sale will be based, among
other things, on product efficacy, safety, reliability, availability, price,
patent position and sales, marketing and distribution capabilities. The
development by others of new treatment methods could render our products under
development non-competitive or obsolete.
Our
competitive position also depends upon our ability to attract and retain
qualified personnel, obtain patent protection or otherwise develop proprietary
products or processes and secure sufficient capital resources for the
often-substantial period between technological conception and commercial sales.
We cannot assure you that we will be successful in this regard.
We
are dependent on our key executives and scientists, and the loss of key
personnel or the failure to attract additional qualified personnel could harm
our business.
Our
business is highly dependent on our key executives and scientific staff. The
loss of key personnel or the failure to recruit necessary additional or
replacement personnel will likely impede the achievement of our development
objectives. There is intense competition for qualified personnel in the
pharmaceutical and biotechnology industries, and there can be no assurances that
we will be able to attract and retain the qualified personnel necessary for the
development of our business.
Risks
Related to Outstanding Litigation
The
outcome of and costs relating to pending litigation are uncertain.
In
November 2008, a complaint against us and our transfer agent, BNY Mellon
Shareholder Services, was filed in the Supreme Court of the State of New York by
an individual stockholder. The complaint alleges that we and our transfer agent
caused or contributed to losses suffered by the stockholder. We deny the
allegations of the complaint and intend to vigorously defend this
lawsuit.
In
September 2008, several of our stockholders, on behalf of themselves and
all others similarly situated, filed a class action complaint against us, our
Board of Directors, and certain of our executive officers in Superior Court of
New Jersey, captioned Collins v. Warrell, Docket No. L-3046-08. The
complaint alleged that in issuing convertible notes in June 2008, our Board of
Directors, and certain officers breached their fiduciary duties, and we aided
and abetted the breach of fiduciary duty. On March 20, 2009, the
Superior Court of New Jersey granted our motion to dismiss the class action
complaint and dismissed the complaint with prejudice. On April 30, 2009, the
plaintiffs filed a notice of appeal with the Appellate Division. On May
13, 2009, the plaintiffs filed a motion for relief from judgment based on a
claim of new evidence, which was denied on June 12, 2009. The plaintiffs
also asked the Appellate Division for a temporary remand to permit the Superior
Court judge to resolve the issues of the new evidence plaintiffs sought to raise
and the Appellate Division granted the motion for temporary
remand. Following the briefing and a hearing, the Superior Court denied the
motion for relief from judgment on August 28, 2009. Thus, this matter will
proceed in the Appellate Division. Plaintiffs' brief before the Appellate
Division was filed on October 28, 2009, and our responsive brief is due on
January 10, 2010. We intend to continue our vigorous defense of this
matter.
Risks
Related to Our Common Stock
Provisions
in our restated certificate of incorporation and bylaws and Delaware law may
discourage a takeover and prevent our stockholders from receiving a premium for
their shares.
Provisions
in our restated certificate of incorporation and bylaws may discourage third
parties from seeking to obtain control of us and, therefore, could prevent our
stockholders from receiving a premium for their shares. Our restated certificate
of incorporation gives our Board of Directors the power to issue shares of
preferred stock without approval of the holders of common stock. Any preferred
stock that is issued in the future could have voting rights, including voting
rights that could be superior to that of our common stock. The affirmative vote
of 66 2/3% of our voting stock is required to approve certain transactions and
to take certain stockholder actions, including the amendment of certain
provisions of our certificate of incorporation. Our bylaws contain provisions
that regulate how stockholders may present proposals or nominate directors for
election at annual meetings of stockholders.
In
addition, we are subject to Section 203 of the Delaware General Corporation Law,
which contains restrictions on stockholder action to acquire control of
us.
In
September 2005, our Board of Directors approved a Stockholder Rights Plan and
declared a dividend of one preferred stock purchase right, which we refer to as
a Right, for each share of our common stock held of record as of the close of
business on September 27, 2005. In addition, Rights shall be issued in respect
of all shares of common stock issued after such date. The Rights contain
provisions to protect stockholders in the event of an unsolicited attempt to
acquire us, including an accumulation of shares in the open market, a partial or
two-tier tender offer that does not treat all stockholders equally and other
activities that the Board believes are not in the best interests of
stockholders. The Rights may discourage a takeover and prevent our stockholders
from receiving a premium for their shares.
We
have not paid, and do not expect to pay in the future, cash dividends on our
common stock.
We have
never paid cash dividends on our common stock and do not anticipate paying any
such dividends in the foreseeable future. We currently intend to retain our
earnings, if any, for the development of our business.
Our
stock price is volatile.
The
market price of our common stock, like that of the common stock of many other
biopharmaceutical companies, has been and likely will continue to be highly
volatile. Factors that could have a significant impact on the future price of
our common stock include but are not limited to:
|
·
|
the results of preclinical
studies and clinical trials by us or our
competitors;
|
|
·
|
announcements of technological
innovations or new therapeutic products by us or our
competitors;
|
|
·
|
developments in patent or other
proprietary rights by us or our competitors, including
litigation;
|
|
·
|
fluctuations in our operating
results; and
|
|
·
|
market conditions for
biopharmaceutical stocks in
general.
|
At
September 30, 2009, our outstanding convertible notes were convertible into
202.9 million shares of common stock. Future sales of shares of our common stock
by existing stockholders, holders of convertible notes who might convert such
convertible notes 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 our common stock. Moreover, the perception
that sales of substantial amounts of our common stock might occur could
adversely affect the market price of our common stock.
As
our convertible noteholders convert their notes and warrants into shares of our
common stock, our stockholders will be diluted.
The
conversion of some or all of our notes dilutes the ownership interests of
existing stockholders. Any sales in the public market of the common stock
issuable upon conversion of the notes could adversely affect prevailing market
prices of our common stock. In addition, the existence of the notes may
encourage short selling by market participants because the conversion of the
notes could depress the price of our common stock.
If
holders of our notes elect to convert their notes and sell material amounts of
our common stock in the market, such sales could cause the price of our common
stock to decline, and such downward pressure on the price of our common stock
may encourage short selling of our common stock by holders of our notes or
others.
If
there is significant downward pressure on the price of our common stock, it may
encourage holders of notes or others to sell shares by means of short sales to
the extent permitted under the U.S. securities laws. Short sales involve
the sale by a holder of notes, usually with a future delivery date, of common
stock the seller does not own. Covered short sales are sales made in an
amount not greater than the number of shares subject to the short seller’s right
to acquire common stock, such as upon conversion of notes. A holder of
notes may close out any covered short position by converting its notes or
purchasing shares in the open market. In determining the source of shares
to close out the covered short position, a holder of notes will likely consider,
among other things, the price of common stock available for purchase in the open
market as compared to the conversion price of the notes. The existence of
a significant number of short sales generally causes the price of common stock
to decline, in part because it indicates that a number of market participants
are taking a position that will be profitable only if the price of the common
stock declines.
Our
common stock is considered a “penny stock” and does not qualify for exemption
from the “penny stock” restrictions, which may make it more difficult for you to
sell your shares.
Our
common stock is classified as a “penny stock” by the SEC and is subject to rules
adopted by the SEC regulating broker-dealer practices in connection with
transactions in “penny stocks.” The SEC has adopted regulations which define a
“penny stock” to be any equity security that has a market price of less than
$5.00 per share, or with an exercise price of less than $5.00 per share, subject
to certain exceptions. For any transaction involving a penny stock, unless
exempt, these rules require delivery, prior to any transaction in a penny stock,
of a disclosure schedule relating to the penny stock market. Disclosure is also
required to be made about current quotations for the securities and commissions
payable to both the broker-dealer and the registered representative. Finally,
broker-dealers must send monthly statements to purchasers of penny stocks
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. As a result of our shares of
common stock being subject to the rules on penny stocks, the liquidity of our
common stock may be adversely affected.
FORWARD-LOOKING
STATEMENTS
This
prospectus contains certain forward-looking statements regarding management’s
plans and objectives for future operations including plans and objectives
relating to our planned marketing efforts and future economic performance. The
forward-looking statements and associated risks set forth in this prospectus
include or relate to, among other things, (a) our projected sales and
profitability, (b) our growth strategies, (c) anticipated trends in our
industry, (d) our ability to obtain and retain sufficient capital for future
operations, and (e) our anticipated needs for working capital. These statements
may be found under “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and “Business”, as well as in this prospectus
generally. Actual events or results may differ materially from those discussed
in forward-looking statements as a result of various factors, including, without
limitation, the risks outlined under “Risk Factors” and matters described in
this prospectus generally. In light of these risks and uncertainties, there can
be no assurance that the forward-looking statements contained in this prospectus
will in fact occur.
The
forward-looking statements herein are based on current expectations that involve
a number of risks and uncertainties. Such forward-looking statements are based
on assumptions that there will be no material adverse competitive or
technological change in conditions in our business, that demand for our products
and services will significantly increase, that our President will remain
employed as such, that our forecasts accurately anticipate market demand, and
that there will be no material adverse change in our operations or business or
in governmental regulations affecting us or our manufacturers and/or suppliers.
The foregoing assumptions are based on judgments with respect to, among other
things, future economic, competitive and market conditions, and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond our control. Accordingly, although we believe that the
assumptions underlying the forward-looking statements are reasonable, any such
assumption could prove to be inaccurate and therefore there can be no assurance
that the results contemplated in forward-looking statements will be realized. In
addition, as disclosed elsewhere in the “Risk Factors” section of this
prospectus, there are a number of other risks inherent in our business and
operations which could cause our operating results to vary markedly and
adversely from prior results or the results contemplated by the forward-looking
statements. Growth in absolute and relative amounts of cost of goods sold and
selling, general and administrative expenses or the occurrence of extraordinary
events could cause actual results to vary materially from the results
contemplated by the forward-looking statements. Management decisions, including
budgeting, are subjective in many respects and periodic revisions must be made
to reflect actual conditions and business developments, the impact of which may
cause us to alter marketing, capital investment and other expenditures, which
may also materially adversely affect our results of operations. In light of
significant uncertainties inherent in the forward-looking information included
in this prospectus, the inclusion of such information should not be regarded as
a representation by us or any other person that our objectives or plans will be
achieved.
Some of
the information in this prospectus contains forward-looking statements that
involve substantial risks and uncertainties. Any statement in this prospectus
and in the documents incorporated by reference into this prospectus that is not
a statement of an historical fact constitutes a “forward-looking statement”.
Further, when we use the words “may”, “expect”, “anticipate”, “plan”, “believe”,
“seek”, “estimate”, “internal” and similar words, we intend to identify
statements and expressions that may be forward-looking statements. We believe it
is important to communicate certain of our expectations to our investors.
Forward-looking statements are not guarantees of future performance. They
involve risks, uncertainties and assumptions that could cause our future results
to differ materially from those expressed in any forward-looking statements.
Many factors are beyond our ability to control or predict. You are accordingly
cautioned not to place undue reliance on such forward-looking statements.
Important factors that may cause our actual results to differ from such
forward-looking statements include, but are not limited to, the risk factors
discussed above. Before you invest in our common stock, you should be aware that
the occurrence of any of the events described under “Risk Factors” or elsewhere
in this prospectus could have a material adverse effect on our business,
financial condition and results of operation. In such a case, the trading price
of our common stock could decline and you could lose all or part of your
investment.
USE
OF PROCEEDS
We will
not receive any of the proceeds from the sale of shares of our common stock by
the selling stockholders, but will receive proceeds related to the exercise of
the July 2009 Warrants for cash held by the selling stockholders. If all
of the July 2009 Warrants registered for resale on this registration statement
are exercised on a cash basis, we will receive gross proceeds of
$1,215,000.00. We will bear all costs, expenses and fees in
connection with the registration of shares of our common stock to be sold by the
selling stockholders. The selling stockholders will bear all commissions
and discounts, if any, attributable to their respective sales of
shares.
DETERMINATION
OF OFFERING PRICE
We are
not selling any of the common stock that we are registering. The common
stock will be sold by the selling stockholders listed in this prospectus.
The selling stockholders may sell the common stock at the market price as of the
date of sale or a price negotiated in a private sale. Our common stock is
currently traded on the OTC Bulletin Board under the symbol
“GETA.OB”.
DIVIDEND
POLICY
We have
never declared or paid any cash dividends on our common stock. We currently
intend to retain our future earnings, if any, to finance the expansion of our
business and do not expect to pay any cash dividends in the foreseeable future.
Payment of future cash dividends, if any, will be at the discretion of our board
of directors after taking into account various factors, including our financial
condition, operating results, current and anticipated cash needs and plans for
expansion and restrictions imposed by lenders, if any.
CAPITALIZATION
The
following table describes our capitalization as of September 30,
2009.
You
should read this capitalization table together with our consolidated financial
statements and the related notes appearing at the end of this prospectus and the
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” section and other financial information included in this
prospectus.
(000)
|
As
of September 30, 2009
|
|
|
As reported
(unaudited)
|
|
Convertible
notes as of September 30, 2009 actual $15,312 outstanding net of debt
discount of ($12,647)
|
|
$
|
2,665
|
|
Common
stock, $.001 par value; 6,000,000 shares authorized, 173,514 shares issued
and outstanding at September 30, 2009
|
|
|
174
|
|
Preferred
stock, 5,000 authorized:
|
|
|
|
|
Series
A convertible preferred stock, $.001 par value; 8 shares issued and
outstanding, liquidation value of $385 at September 30, 2009 (actual and
as adjusted)
|
|
|
—
|
|
Series
G participating cumulative preferred stock, $.001 par value; 0 shares
issued and outstanding at September 30, 2009 (actual and as
adjusted)
|
|
|
—
|
|
Additional
paid-in capital
|
|
|
1,022,026
|
|
Accumulated
deficit
|
|
|
(1,018,706
|
)
|
|
|
|
|
|
Total
stockholders’equity
|
|
|
3,494
|
|
|
|
|
|
|
Total
capitalization
|
|
$
|
6,159
|
|
DILUTION
We are
not offering or selling any of the shares of common stock in this
offering. All of the offered shares of our common stock are held or will
be held by the selling stockholders at the time of sale and, accordingly, no
dilution will result from the sale of the shares.
SELLING
STOCKHOLDERS
A portion
of the shares of common stock being offered by the selling stockholders are
issuable upon conversion of the July 2009 Notes and September 2009 Notes and
upon exercise of the July 2009 Warrants. For additional information
regarding the issuance of the July 2009 Notes, July 2009 Warrants and September
2009 Notes, see the Company’s Forms 8-K filed with the SEC on July 8, 2009 and
September 9, 2009. We are registering the shares of common stock in order
to permit the selling stockholders to offer the shares for resale from time to
time. Except as otherwise noted and except for the ownership of the
convertible notes and the warrants issued pursuant to a securities purchase
agreement between the Company and certain accredited institutional investors,
the selling stockholders have not had any material relationship with us within
the past three years.
The table
below lists the selling stockholders and other information regarding the
beneficial ownership of the shares of common stock by each of the selling
stockholders. The second column lists the number of shares of common stock
held or acquirable (without restriction) by each selling stockholder, based on
its ownership of the convertible notes, common stock and warrants, as of
December 16, 2009, assuming conversion of all convertible notes and exercise of
the warrants held by the selling stockholder on that date, without regard to any
limitations on conversions or exercise. The third column lists the number
of shares of common stock beneficially owned by each selling stockholder, based
on its ownership of the convertible notes, common stock and warrants, as of
December 16, 2009, determined in accordance with Rule 13d-3 of the Exchange Act,
and taking into account any limitations on conversions or exercise. The
fourth column lists the shares of common stock being offered by this prospectus
by the selling stockholders. In accordance with the terms of a
registration rights agreement with the selling stockholders, this prospectus
generally covers the resale of at least that number of shares of common stock
permitted to be registered pursuant to this registration statement by the SEC
pursuant to Rule 415 of the Securities Act. Because the conversion price
of the July 2009 Notes and September 2009 Notes and the exercise price of the
July 2009 Warrants may be adjusted, the number of shares that will actually be
issued may be more or less than the number of shares being offered by this
prospectus. The fifth and sixth columns assume the sale of all of the
shares offered by the selling stockholders pursuant to this
prospectus.
Under the
terms of the July 2009 Notes and September 2009 Notes, a selling stockholder may
not convert the July 2009 Notes or September 2009 Notes to the extent such
conversion would cause such selling stockholder, together with its affiliates,
to beneficially own a number of shares of common stock which would exceed 9.999%
of our then outstanding shares of common stock following such conversion,
excluding for purposes of such determination shares of common stock issuable
upon conversion of the July 2009 Notes or September 2009 Notes which have not
been converted. Under the terms of the July 2009 Warrants and September
2009 Warrants, a selling stockholder may not exercise the warrants to the extent
such exercise would cause such selling stockholder, together with its
affiliates, to beneficially own a number of shares of common stock which would
exceed 4.999% of our then outstanding shares of common stock issuable upon
exercise, excluding for purposes of such determination shares of common stock
issuable upon exercise of the Warrants which have not been exercised. The
number of shares in the second and fifth columns do not reflect this
limitation. The selling stockholders may sell all, some or none of their
shares in this offering. See “Plan of Distribution.”
|
|
Number of Shares
held or acquirable
(without reference to
restrictions prior to
the Offering)
|
|
|
Shares of Common Stock
Beneficially Owned
Prior to the Offering
|
|
|
Maximum
Number of
Shares
to be Sold
Pursuant to
this
Prospectus(4)
|
|
|
Number of
Shares held or
acquirable
(without
reference to
restrictions)
After the
Offering (5)
|
|
|
Shares of Common Stock
Beneficially Owned
After the Offering
|
|
Selling stockholder
|
|
|
|
|
Number of
Shares
Beneficially
Owned (1)
|
|
|
Percent
of Class (1)(2)(3)
|
|
|
|
|
|
|
|
|
Number of
Shares
Beneficially
Owned (5)
|
|
|
Percent
of Class
(1)(2)(3)
|
|
Tang
Capital Partners, LP
|
|
|
125,848,675 |
(6) |
|
|
19,477,127 |
|
|
|
9.999 |
% |
|
|
17,774,309 |
|
|
|
108,074,366 |
|
|
|
27,388,539 |
|
|
|
9.999 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
667,
L.P.
|
|
|
112,995,981 |
(7) |
|
|
19,179,170 |
|
|
|
9.999 |
% |
|
|
1,483,611 |
|
|
|
96,994,750 |
|
|
|
24,649,956 |
|
|
|
9.999 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
667,
L.P. #2
|
|
|
112,995,981 |
(8) |
|
|
19,179,170 |
|
|
|
9.999 |
% |
|
|
1,328,660 |
|
|
|
96,994,750 |
|
|
|
24,649,956 |
|
|
|
9.999 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baker
Brothers Life Sciences, L.P.
|
|
|
112,995,981 |
(9) |
|
|
19,179,170 |
|
|
|
9.999 |
% |
|
|
12,807,879 |
|
|
|
96,994,750 |
|
|
|
24,649,956 |
|
|
|
9.999 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14159,
L.P.
|
|
|
112,995,981 |
(10) |
|
|
19,179,170 |
|
|
|
9.999 |
% |
|
|
381,081 |
|
|
|
96,994,750 |
|
|
|
24,649,956 |
|
|
|
9.999 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BAM
Opportunity Fund, L.P.
|
|
|
23,051,359 |
(11) |
|
|
14,383,626 |
|
|
|
7.190 |
% |
|
|
4,820,064 |
|
|
|
18,231,295 |
|
|
|
18,231,295 |
|
|
|
7.050 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boxer
Capital LLC
|
|
|
30,026,844 |
(12) |
|
|
15,491,026 |
|
|
|
7.666 |
% |
|
|
5,028,437 |
|
|
|
24,998,407 |
|
|
|
24,649,956 |
|
|
|
9.999 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cat
Trail Private Equity Fund, LLC
|
|
|
44,911,703 |
(13) |
|
|
19,179,170 |
|
|
|
9.999 |
% |
|
|
6,353,230 |
|
|
|
38,558,473 |
|
|
|
24,649,956 |
|
|
|
9.999 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arcus
Ventures Fund
|
|
|
23,007,926 |
(14) |
|
|
14,171,842 |
|
|
|
7.084 |
% |
|
|
3,176,615 |
|
|
|
19,831,311 |
|
|
|
19,831,311 |
|
|
|
7.615 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cranshire
Capital LP
|
|
|
2,450,192 |
(15) |
|
|
2,450,192 |
|
|
|
1.268 |
% |
|
|
362,692 |
|
|
|
2,087,500 |
|
|
|
2,087,500 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rockmore
Investment Master Fund Ltd.
|
|
|
2,372,973 |
(16) |
|
|
2,372,973 |
|
|
|
1.229 |
% |
|
|
226,391 |
|
|
|
2,146,582 |
|
|
|
2,146,582 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RRC
BioFund, LP
|
|
|
1,225,096 |
(17) |
|
|
1,225,096 |
|
|
|
* |
|
|
|
181,346 |
|
|
|
1,043,750 |
|
|
|
1,043,750 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rodman
& Renshaw, LLC (18)
|
|
|
12,935,750 |
(19) |
|
|
10,060,426 |
|
|
|
4.985 |
% |
|
|
346,384 |
|
|
|
12,589,366 |
|
|
|
12,589,366 |
|
|
|
4.860 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MVA
Investors LLC, II
|
|
|
2,423,691 |
(20) |
|
|
2,423,691 |
|
|
|
1.252 |
% |
|
|
442,630 |
|
|
|
1,981,061 |
|
|
|
1,981,061 |
|
|
|
* |
|
*
|
Represents beneficial ownership
of less than one percent of our outstanding common
stock.
|
|
(1)
|
The Issuer’s 15% Senior Secured
Convertible Promissory Notes due June 2011 (the “June 2008 Notes”) and the
Issuer’s 8% Senior Secured Convertible Promissory Notes due April 2012
(the “April 2009 Notes”) can only be converted to the extent that, after
such conversion, the Reporting Persons would beneficially own no more than
4.999% of the Issuer’s Common Stock. The July 2009 Notes and the
September 2009 Notes can only be converted to the extent that, after such
conversion, the Reporting Persons would beneficially own no more than
9.999% of the Issuer’s Common Stock. Warrants issued in April 2009
(the “April 2009 Warrants”) can only be exercised to the extent that,
after such exercise, the Reporting Person would beneficially own no more
than 4.999% of the Issuer’s Common Stock. The July 2009
Warrants are not exercisable until after January 7, 2010 and March 4,
2010, respectively, and the September 2009 Warrants are not exercisable
until after March 4, 2010, and after each such date, the warrants are only
exercisable to the extent that, after such exercise, the Reporting Persons
would beneficially own no more than 4.999% of the Issuer’s Common
Stock. Additionally, the July 2009 Notes and the September 2009 Notes
can only be converted beginning the earlier of (i) two weeks from the
effectiveness of a resale registration statement registering the common
stock underlying such notes and (ii) the date that is six months following
the issuance date. The beneficial ownership total in this column
assumes that this registration statement has been declared effective and
the July 2009 Notes and the September 2009 Notes are currently convertible
according to their respective terms. The shares numbers and percentages
set forth in the columns below reflect these limitations on conversion and
exercise. Please note that the holders of the convertible notes and
warrants may negotiate with the Company to amend the provisions limiting
their conversion/exchange.
|
|
(2)
|
Calculated assuming the total
number of shares of common stock outstanding are 191,810,882, the number
of shares of common stock outstanding on December 16,
2009.
|
|
(3)
|
Shares of common stock underlying
convertible notes or warrants are deemed outstanding for computing the
percentage ownership of the selling stockholder holding the convertible
notes or warrants, prior to and after giving effect to the offering, but
are not deemed outstanding for computing the percentage ownership of any
other selling stockholder.
|
|
(4)
|
The
information regarding the type and amount of securities being registered
for resale by each selling stockholders is set forth below in the section
entitled “Additional Information About the Transactions Between the
Company and the Selling Stockholders,” and to the extent there is a
difference between that information and the information set forth in this
column, that difference consists of Common Stock registered for resale by
each selling stockholder.
|
|
(5)
|
We do not know when or in what
amounts a selling stockholder may offer shares for sale. The selling
stockholders might not sell any or all of the shares offered by this
prospectus. Because the selling stockholders may offer all or some of the
shares pursuant to this offering and because there are currently no
agreements, arrangements or understandings with respect to the sale of any
of the shares, we cannot estimate the number of the shares that will be
held by the selling stockholders after completion of the offering.
However, for purposes of this table, we have assumed that, after
completion of the offering, none of the shares covered by this prospectus
will be held by the selling
stockholders.
|
|
(6)
|
Tang Capital Partners, LP has the
right to acquire (setting aside for these purposes the restrictions
described in footnote 1) 125,848,675 shares of Common Stock, comprised of
16,497,257 shares of Common Stock, $86,047.74 face amount of the June 2008
Notes, which are convertible into 860,478 shares of Common Stock,
$1,911,666.67 face amount of the April 2009 Notes, which are convertible
into 19,116,667 shares of Common Stock, $1,954,299.48 face amount of July
2009 Notes, which are convertible into 19,542,995 shares of Common Stock,
and $633,614.68 face amount of September 2009 Notes, which are convertible
into 6,336,147 shares of Common Stock. Additionally, Tang Capital
Partners, LP holds an April 2009 Warrant to purchase 4,625,000 shares of
the Issuer’s Common Stock at an exercise price of $0.50 per share, July
2009 Warrants to purchase 5,831,576 shares of the Issuer’s Common Stock at
an exercise price of $1.00 per share and a September 2009 Warrant to
purchase 1,584,037 shares of the Issuer’s Common Stock at an exercise
price of $1.00 per share. Tang Capital Partners, LP also has the
right, pursuant to a Securities Purchase Agreement dated April 2, 2009, to
purchase an additional $1,850,000.00 face amount of the April 2009 Notes,
which are convertible into 18,500,000 shares of Common Stock, and a
warrant to purchase 4,625,000 shares at an exercise price of $0.50 per
share. Tang Capital Partners LP also has the right, pursuant to a
Consent Agreement dated April 2, 2009, and amended on May 22, 2009 and
July 7, 2009, to purchase $2,832,951.79 face amount of the April 2009
Notes, which are convertible into 28,329,518 shares of Common Stock.
Tang Capital Partners shares voting and dispositive power over such
shares, notes and warrants with Tang Capital Management and Kevin C.
Tang. Tang Capital Management, as the general partner of Tang
Capital Partners, may be deemed to beneficially own the shares held or
acquirable by Tang Capital Partners. Tang Capital Management shares
voting and dispositive power over such shares with Tang Capital Partners
and Kevin C. Tang. Kevin C. Tang, as manager of Tang Capital
Management, may be deemed to beneficially own the shares held or
acquirable by Tang Capital Partners. Mr. Tang shares voting and
dispositive power over such shares with Tang Capital Partners and Tang
Capital Management. Mr. Tang disclaims beneficial ownership of all
shares reported herein except to the extent of his pecuniary interest
therein.
|
|
(7)
|
667, L.P., 667, L.P. #2, Baker
Brothers Life Sciences, L.P. and 14159, L.P. (collectively, the “Baker
Bros. Affiliates”) have the right to acquire (setting aside for these
purposes the restrictions described in footnote 1) a total of 112,995,981
shares of Common Stock which are held as set forth below. 667, L.P.:
9,545,699 shares of Common Stock, comprised of 1,551,822 shares of Common
Stock, $9,835.03 of the June 2008 Notes, which are convertible into 98,350
shares of Common Stock, $196,333.33 of the April 2009 Notes, which are
convertible into 1,963,333 shares of Common Stock, $162,303.62 of July
2009 Notes, which are convertible into 1,623,036 shares of Common Stock,
and $78,279.60 of September 2009 Notes, which are convertible into 782,796
shares of Common Stock. The fund also holds an April 2009 Warrant to
purchase 475,000 shares with an exercise price of $0.50 per share, a July
2009 Warrant to purchase 170,000 shares with an exercise price of $1.00
per share, which warrant is not exercisable until January 7, 2010, a July
2009 Warrant to purchase 314,217 shares with an exercise price of $1.00
per share, which warrant is not exercisable until March 4, 2010, and a
September 2009 Warrant to purchase 195,700 shares with an exercise price
of $1.00 per share, which warrant is not exercisable until March 4, 2010.
The fund also has the right, pursuant to a Securities Purchase
Agreement dated April 2, 2009, to purchase an additional $190,000.00 face
amount of the April 2009 Notes, which are convertible into 1,900,000
shares of Common Stock, and a warrant to purchase 475,000 shares with an
exercise price of $0.50 per share. The fund also has the right,
pursuant to a Consent Agreement dated April 2, 2009, and amended on May
22, 2009 and July 7, 2009, to purchase $212,687.50 face amount of the
April 2009 Notes, which are convertible into 2,126,875 shares of Common
Stock. 667, L.P. #2: 7,661,357 shares of Common Stock,
comprised of 1,262,179 shares of Common Stock, $7,852.39 of the June 2008
Notes, which are convertible into 78,524 shares of Common Stock,
$160,166.07 of the April 2009 Notes, which are convertible into 1,601,667
shares of Common Stock, $120,325.80 of July 2009 Notes, which are
convertible into 1,203,258 shares of Common Stock, and $63,798.40 of
September 2009 Notes, which are convertible into 637,984 shares of Common
Stock. The fund also holds an April 2009 Warrant to purchase 387,500
shares with an exercise price of $0.50 per share, a July 2009 Warrant to
purchase 140,000 shares with an exercise price of $1.00 per share, which
warrant is not exercisable until January 7, 2010, a July 2009 Warrant to
purchase 256,087 shares with an exercise price of $1.00 per share, which
warrant is not exercisable until March 4, 2010, and a September 2009
Warrant to purchase 159,496 shares with an exercise price of $1.00 per
share, which warrant is not exercisable until March 4, 2010. The fund also
has the right, pursuant to a Securities Purchase Agreement dated April 2,
2009, to purchase an additional $155,000.00 face amount of the April 2009
Notes, which are convertible into 1,550,000 shares of Common Stock, and a
warrant to purchase 387,500 shares with an exercise price of $0.50 per
share. The fund also has the right, pursuant to a Consent
Agreement dated April 2, 2009, and amended on May 22, 2009 and July 7,
2009, to purchase $174,300 face amount of the April 2009 Notes, which are
convertible into 1,743,000 shares of Common Stock. Baker
Brothers Life Sciences L.P.: 93,416,380 shares of Common Stock, comprised
of 11,882,595 shares of Common Stock, $73,101.63 of the June 2008 Notes,
which are convertible into 731,017 shares of Common Stock, $1,506,600 of
the April 2009 Notes, which are convertible into 15,066,000 shares of
Common Stock, $1,192,999.17 of July 2009 Notes, which are convertible into
11,929,992 shares of Common Stock, and $599,836.10 of September 2009
Notes, which are convertible into 5,998,361 shares of Common Stock. The
fund also holds an April 2009 Warrant to purchase 3,645,000 shares with an
exercise price of $0.50 per share, a July 2009 Warrant to purchase
1,307,500 shares with an exercise price of $1.00 per share, which warrant
is not exercisable until January 7, 2010, a July 2009 Warrant to purchase
2,407,747 shares with an exercise price of $1.00 per share, which warrant
is not exercisable until March 4, 2010, and a September 2009 Warrant to
purchase 1,499,590 shares with an exercise price of $1.00 per share, which
warrant is not exercisable until March 4, 2010. The fund also has the
right, pursuant to a Securities Purchase Agreement dated April 2, 2009, to
purchase an additional $1,458,000.00 face amount of the April 2009 Notes,
which are convertible into 14,580,000 shares of Common Stock, and a
warrant to purchase 3,645,000 shares with an exercise price of $0.50 per
share. The fund also has the right, pursuant to a Consent Agreement dated
April 2, 2009, and amended on May 22, 2009 and July 7, 2009, to purchase
$1,635,100 face amount of the April 2009 Notes, which are convertible into
16,351,000 shares of Common Stock. 14159, L.P.: 2,338,925
shares of Common Stock, comprised of 381,318 shares of Common Stock,
$2,226.62 of the June 2008 Notes, which are convertible into 22,267 shares
of Common Stock, $48,566.67 of the April 2009 Notes, which are convertible
into 485,667 shares of Common Stock, $38,443.80 of July 2009 Notes, which
are convertible into 384,438 shares of Common Stock, and $19,288.96 of
September 2009 Notes, which are convertible into 192,890 shares of Common
Stock. The fund also holds an April 2009 Warrant to purchase 117,500
shares with an exercise price of $0.50 per share, a July 2009 Warrant to
purchase 42,500 shares with an exercise price of $1.00 per share, which
warrant is not exercisable until January 7, 2010, a July 2009 Warrant to
purchase 77,427 shares with an exercise price of $1.00 per share, which
warrant is not exercisable until March 4, 2010, and a September 2009
Warrant to purchase 48,223 shares with an exercise price of $1.00 per
share, which warrant is not exercisable until March 4, 2010. The
fund also has the right, pursuant to a Securities Purchase Agreement dated
April 2, 2009, to purchase an additional $47,000.00 face amount of the
April 2009 Notes, which are convertible into 470,000 shares of Common
Stock, and a warrant to purchase 117,500 shares with an exercise price of
$0.50 per share. The fund also has the right, pursuant to a Consent
Agreement dated April 2, 2009, and amended on May 22, 2009 and July 7,
2009, to purchase $52,912.50 face amount of the April 2009 Notes, which
are convertible into 529,125 shares of Common Stock. By virtue
of their ownership of entities that have the power to control the
investment decisions of the Baker Bros. Affiliates, Felix J. Baker and
Julian C. Baker may each be deemed to be beneficial owners of shares held
or acquirable by the Baker Bros Affiliates and may be
deemed to have shared power to vote or direct the vote of and shared power
to dispose or direct the disposition of such
securities.
|
|
(8)
|
667, L.P., 667, L.P. #2, Baker
Brothers Life Sciences, L.P. and 14159, L.P. (collectively, the “Baker
Bros. Affiliates”) have the right to acquire (setting aside for these
purposes the restrictions described in footnote 1) a total of 112,995,981
shares of Common Stock which are held as set forth below. 667, L.P.:
9,545,699 shares of Common Stock, comprised of 1,551,822 shares of Common
Stock, $9,835.03 of the June 2008 Notes, which are convertible into 98,350
shares of Common Stock, $196,333.33 of the April 2009 Notes, which are
convertible into 1,963,333 shares of Common Stock, $162,303.62 of July
2009 Notes, which are convertible into 1,623,036 shares of Common Stock,
and $78,279.60 of September 2009 Notes, which are convertible into 782,796
shares of Common Stock. The fund also holds an April 2009 Warrant to
purchase 475,000 shares with an exercise price of $0.50 per share, a July
2009 Warrant to purchase 170,000 shares with an exercise price of $1.00
per share, which warrant is not exercisable until January 7, 2010, a July
2009 Warrant to purchase 314,217 shares with an exercise price of $1.00
per share, which warrant is not exercisable until March 4, 2010, and a
September 2009 Warrant to purchase 195,700 shares with an exercise price
of $1.00 per share, which warrant is not exercisable until March 4, 2010.
The fund also has the right, pursuant to a Securities Purchase
Agreement dated April 2, 2009, to purchase an additional $190,000.00 face
amount of the April 2009 Notes, which are convertible into 1,900,000
shares of Common Stock, and a warrant to purchase 475,000 shares with an
exercise price of $0.50 per share. The fund also has the right,
pursuant to a Consent Agreement dated April 2, 2009, and amended on May
22, 2009 and July 7, 2009, to purchase $212,687.50 face amount of the
April 2009 Notes, which are convertible into 2,126,875 shares of Common
Stock. 667, L.P. #2: 7,661,357 shares of Common Stock,
comprised of 1,262,179 shares of Common Stock, $7,852.39 of the June 2008
Notes, which are convertible into 78,524 shares of Common Stock,
$160,166.07 of the April 2009 Notes, which are convertible into 1,601,667
shares of Common Stock, $120,325.80 of July 2009 Notes, which are
convertible into 1,203,258 shares of Common Stock, and $63,798.40 of
September 2009 Notes, which are convertible into 637,984 shares of Common
Stock. The fund also holds an April 2009 Warrant to purchase 387,500
shares with an exercise price of $0.50 per share, a July 2009 Warrant to
purchase 140,000 shares with an exercise price of $1.00 per share, which
warrant is not exercisable until January 7, 2010, a July 2009 Warrant to
purchase 256,087 shares with an exercise price of $1.00 per share, which
warrant is not exercisable until March 4, 2010, and a September 2009
Warrant to purchase 159,496 shares with an exercise price of $1.00 per
share, which warrant is not exercisable until March 4, 2010. The fund also
has the right, pursuant to a Securities Purchase Agreement dated April 2,
2009, to purchase an additional $155,000.00 face amount of the April 2009
Notes, which are convertible into 1,550,000 shares of Common Stock, and a
warrant to purchase 387,500 shares with an exercise price of $0.50 per
share. The fund also has the right, pursuant to a Consent
Agreement dated April 2, 2009, and amended on May 22, 2009 and July 7,
2009, to purchase $174,300 face amount of the April 2009 Notes, which are
convertible into 1,743,000 shares of Common Stock. Baker
Brothers Life Sciences L.P.: 93,416,380 shares of Common Stock, comprised
of 11,882,595 shares of Common Stock, $73,101.63 of the June 2008 Notes,
which are convertible into 731,017 shares of Common Stock, $1,506,600 of
the April 2009 Notes, which are convertible into 15,066,000 shares of
Common Stock, $1,192,999.17 of July 2009 Notes, which are convertible into
11,929,992 shares of Common Stock, and $599,836.10 of September 2009
Notes, which are convertible into 5,998,361 shares of Common Stock. The
fund also holds an April 2009 Warrant to purchase 3,645,000 shares with an
exercise price of $0.50 per share, a July 2009 Warrant to purchase
1,307,500 shares with an exercise price of $1.00 per share, which warrant
is not exercisable until January 7, 2010, a July 2009 Warrant to purchase
2,407,747 shares with an exercise price of $1.00 per share, which warrant
is not exercisable until March 4, 2010, and a September 2009 Warrant to
purchase 1,499,590 shares with an exercise price of $1.00 per share, which
warrant is not exercisable until March 4, 2010. The fund also has the
right, pursuant to a Securities Purchase Agreement dated April 2, 2009, to
purchase an additional $1,458,000.00 face amount of the April 2009 Notes,
which are convertible into 14,580,000 shares of Common Stock, and a
warrant to purchase 3,645,000 shares with an exercise price of $0.50 per
share. The fund also has the right, pursuant to a Consent Agreement dated
April 2, 2009, and amended on May 22, 2009 and July 7, 2009, to purchase
$1,635,100 face amount of the April 2009 Notes, which are convertible into
16,351,000 shares of Common Stock. 14159, L.P.: 2,338,925
shares of Common Stock, comprised of 381,318 shares of Common Stock,
$2,226.62 of the June 2008 Notes, which are convertible into 22,267 shares
of Common Stock, $48,566.67 of the April 2009 Notes, which are convertible
into 485,667 shares of Common Stock, $38,443.80 of July 2009 Notes, which
are convertible into 384,438 shares of Common Stock, and $19,288.96 of
September 2009 Notes, which are convertible into 192,890 shares of Common
Stock. The fund also holds an April 2009 Warrant to purchase 117,500
shares with an exercise price of $0.50 per share, a July 2009 Warrant to
purchase 42,500 shares with an exercise price of $1.00 per share, which
warrant is not exercisable until January 7, 2010, a July 2009 Warrant to
purchase 77,427 shares with an exercise price of $1.00 per share, which
warrant is not exercisable until March 4, 2010, and a September 2009
Warrant to purchase 48,223 shares with an exercise price of $1.00 per
share, which warrant is not exercisable until March 4, 2010. The
fund also has the right, pursuant to a Securities Purchase Agreement dated
April 2, 2009, to purchase an additional $47,000.00 face amount of the
April 2009 Notes, which are convertible into 470,000 shares of Common
Stock, and a warrant to purchase 117,500 shares with an exercise price of
$0.50 per share. The fund also has the right, pursuant to a Consent
Agreement dated April 2, 2009, and amended on May 22, 2009 and July 7,
2009, to purchase $52,912.50 face amount of the April 2009 Notes, which
are convertible into 529,125 shares of Common Stock. By virtue
of their ownership of entities that have the power to control the
investment decisions of the Baker Bros. Affiliates, Felix J. Baker and
Julian C. Baker may each be deemed to be beneficial owners of shares held
or acquirable by the Baker Bros Affiliates and may be
deemed to have shared power to vote or direct the vote of and shared power
to dispose or direct the disposition of such
securities.
|
|
(9)
|
667, L.P., 667, L.P. #2, Baker
Brothers Life Sciences, L.P. and 14159, L.P. (collectively, the “Baker
Bros. Affiliates”) have the right to acquire (setting aside for these
purposes the restrictions described in footnote 1) a total of 112,995,981
shares of Common Stock which are held as set forth below. 667, L.P.:
9,545,699 shares of Common Stock, comprised of 1,551,822 shares of Common
Stock, $9,835.03 of the June 2008 Notes, which are convertible into 98,350
shares of Common Stock, $196,333.33 of the April 2009 Notes, which are
convertible into 1,963,333 shares of Common Stock, $162,303.62 of July
2009 Notes, which are convertible into 1,623,036 shares of Common Stock,
and $78,279.60 of September 2009 Notes, which are convertible into 782,796
shares of Common Stock. The fund also holds an April 2009 Warrant to
purchase 475,000 shares with an exercise price of $0.50 per share, a July
2009 Warrant to purchase 170,000 shares with an exercise price of $1.00
per share, which warrant is not exercisable until January 7, 2010, a July
2009 Warrant to purchase 314,217 shares with an exercise price of $1.00
per share, which warrant is not exercisable until March 4, 2010, and a
September 2009 Warrant to purchase 195,700 shares with an exercise price
of $1.00 per share, which warrant is not exercisable until March 4, 2010.
The fund also has the right, pursuant to a Securities Purchase
Agreement dated April 2, 2009, to purchase an additional $190,000.00 face
amount of the April 2009 Notes, which are convertible into 1,900,000
shares of Common Stock, and a warrant to purchase 475,000 shares with an
exercise price of $0.50 per share. The fund also has the right,
pursuant to a Consent Agreement dated April 2, 2009, and amended on May
22, 2009 and July 7, 2009, to purchase $212,687.50 face amount of the
April 2009 Notes, which are convertible into 2,126,875 shares of Common
Stock. 667, L.P. #2: 7,661,357 shares of Common Stock,
comprised of 1,262,179 shares of Common Stock, $7,852.39 of the June 2008
Notes, which are convertible into 78,524 shares of Common Stock,
$160,166.07 of the April 2009 Notes, which are convertible into 1,601,667
shares of Common Stock, $120,325.80 of July 2009 Notes, which are
convertible into 1,203,258 shares of Common Stock, and $63,798.40 of
September 2009 Notes, which are convertible into 637,984 shares of Common
Stock. The fund also holds an April 2009 Warrant to purchase 387,500
shares with an exercise price of $0.50 per share, a July 2009 Warrant to
purchase 140,000 shares with an exercise price of $1.00 per share, which
warrant is not exercisable until January 7, 2010, a July 2009 Warrant to
purchase 256,087 shares with an exercise price of $1.00 per share, which
warrant is not exercisable until March 4, 2010, and a September 2009
Warrant to purchase 159,496 shares with an exercise price of $1.00 per
share, which warrant is not exercisable until March 4, 2010. The fund also
has the right, pursuant to a Securities Purchase Agreement dated April 2,
2009, to purchase an additional $155,000.00 face amount of the April 2009
Notes, which are convertible into 1,550,000 shares of Common Stock, and a
warrant to purchase 387,500 shares with an exercise price of $0.50 per
share. The fund also has the right, pursuant to a Consent
Agreement dated April 2, 2009, and amended on May 22, 2009 and July 7,
2009, to purchase $174,300 face amount of the April 2009 Notes, which are
convertible into 1,743,000 shares of Common Stock. Baker
Brothers Life Sciences L.P.: 93,416,380 shares of Common Stock, comprised
of 11,882,595 shares of Common Stock, $73,101.63 of the June 2008 Notes,
which are convertible into 731,017 shares of Common Stock, $1,506,600 of
the April 2009 Notes, which are convertible into 15,066,000 shares of
Common Stock, $1,192,999.17 of July 2009 Notes, which are convertible into
11,929,992 shares of Common Stock, and $599,836.10 of September 2009
Notes, which are convertible into 5,998,361 shares of Common Stock. The
fund also holds an April 2009 Warrant to purchase 3,645,000 shares with an
exercise price of $0.50 per share, a July 2009 Warrant to purchase
1,307,500 shares with an exercise price of $1.00 per share, which warrant
is not exercisable until January 7, 2010, a July 2009 Warrant to purchase
2,407,747 shares with an exercise price of $1.00 per share, which warrant
is not exercisable until March 4, 2010, and a September 2009 Warrant to
purchase 1,499,590 shares with an exercise price of $1.00 per share, which
warrant is not exercisable until March 4, 2010. The fund also has the
right, pursuant to a Securities Purchase Agreement dated April 2, 2009, to
purchase an additional $1,458,000.00 face amount of the April 2009 Notes,
which are convertible into 14,580,000 shares of Common Stock, and a
warrant to purchase 3,645,000 shares with an exercise price of $0.50 per
share. The fund also has the right, pursuant to a Consent Agreement dated
April 2, 2009, and amended on May 22, 2009 and July 7, 2009, to purchase
$1,635,100 face amount of the April 2009 Notes, which are convertible into
16,351,000 shares of Common Stock. 14159, L.P.: 2,338,925
shares of Common Stock, comprised of 381,318 shares of Common Stock,
$2,226.62 of the June 2008 Notes, which are convertible into 22,267 shares
of Common Stock, $48,566.67 of the April 2009 Notes, which are convertible
into 485,667 shares of Common Stock, $38,443.80 of July 2009 Notes, which
are convertible into 384,438 shares of Common Stock, and $19,288.96 of
September 2009 Notes, which are convertible into 192,890 shares of Common
Stock. The fund also holds an April 2009 Warrant to purchase 117,500
shares with an exercise price of $0.50 per share, a July 2009 Warrant to
purchase 42,500 shares with an exercise price of $1.00 per share, which
warrant is not exercisable until January 7, 2010, a July 2009 Warrant to
purchase 77,427 shares with an exercise price of $1.00 per share, which
warrant is not exercisable until March 4, 2010, and a September 2009
Warrant to purchase 48,223 shares with an exercise price of $1.00 per
share, which warrant is not exercisable until March 4, 2010. The
fund also has the right, pursuant to a Securities Purchase Agreement dated
April 2, 2009, to purchase an additional $47,000.00 face amount of the
April 2009 Notes, which are convertible into 470,000 shares of Common
Stock, and a warrant to purchase 117,500 shares with an exercise price of
$0.50 per share. The fund also has the right, pursuant to a Consent
Agreement dated April 2, 2009, and amended on May 22, 2009 and July 7,
2009, to purchase $52,912.50 face amount of the April 2009 Notes, which
are convertible into 529,125 shares of Common Stock. By virtue
of their ownership of entities that have the power to control the
investment decisions of the Baker Bros. Affiliates, Felix J. Baker and
Julian C. Baker may each be deemed to be beneficial owners of shares held
or acquirable by the Baker Bros Affiliates and may be
deemed to have shared power to vote or direct the vote of and shared power
to dispose or direct the disposition of such
securities.
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(10)
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667, L.P., 667, L.P. #2, Baker
Brothers Life Sciences, L.P. and 14159, L.P. (collectively, the “Baker
Bros. Affiliates”) have the right to acquire (setting aside for these
purposes the restrictions described in footnote 1) a total of 112,995,981
shares of Common Stock which are held as set forth below. 667, L.P.:
9,545,699 shares of Common Stock, comprised of 1,551,822 shares of Common
Stock, $9,835.03 of the June 2008 Notes, which are convertible into 98,350
shares of Common Stock, $196,333.33 of the April 2009 Notes, which are
convertible into 1,963,333 shares of Common Stock, $162,303.62 of July
2009 Notes, which are convertible into 1,623,036 shares of Common Stock,
and $78,279.60 of September 2009 Notes, which are convertible into 782,796
shares of Common Stock. The fund also holds an April 2009 Warrant to
purchase 475,000 shares with an exercise price of $0.50 per share, a July
2009 Warrant to purchase 170,000 shares with an exercise price of $1.00
per share, which warrant is not exercisable until January 7, 2010, a July
2009 Warrant to purchase 314,217 shares with an exercise price of $1.00
per share, which warrant is not exercisable until March 4, 2010, and a
September 2009 Warrant to purchase 195,700 shares with an exercise price
of $1.00 per share, which warrant is not exercisable until March 4, 2010.
The fund also has the right, pursuant to a Securities Purchase
Agreement dated April 2, 2009, to purchase an additional $190,000.00 face
amount of the April 2009 Notes, which are convertible into 1,900,000
shares of Common Stock, and a warrant to purchase 475,000 shares with an
exercise price of $0.50 per share. The fund also has the right,
pursuant to a Consent Agreement dated April 2, 2009, and amended on May
22, 2009 and July 7, 2009, to purchase $212,687.50 face amount of the
April 2009 Notes, which are convertible into 2,126,875 shares of Common
Stock. 667, L.P. #2: 7,661,357 shares of Common Stock,
comprised of 1,262,179 shares of Common Stock, $7,852.39 of the June 2008
Notes, which are convertible into 78,524 shares of Common Stock,
$160,166.07 of the April 2009 Notes, which are convertible into 1,601,667
shares of Common Stock, $120,325.80 of July 2009 Notes, which are
convertible into 1,203,258 shares of Common Stock, and $63,798.40 of
September 2009 Notes, which are convertible into 637,984 shares of Common
Stock. The fund also holds an April 2009 Warrant to purchase 387,500
shares with an exercise price of $0.50 per share, a July 2009 Warrant to
purchase 140,000 shares with an exercise price of $1.00 per share, which
warrant is not exercisable until January 7, 2010, a July 2009 Warrant to
purchase 256,087 shares with an exercise price of $1.00 per share, which
warrant is not exercisable until March 4, 2010, and a September 2009
Warrant to purchase 159,496 shares with an exercise price of $1.00 per
share, which warrant is not exercisable until March 4, 2010. The fund also
has the right, pursuant to a Securities Purchase Agreement dated April 2,
2009, to purchase an additional $155,000.00 face amount of the April 2009
Notes, which are convertible into 1,550,000 shares of Common Stock, and a
warrant to purchase 387,500 shares with an exercise price of $0.50 per
share. The fund also has the right, pursuant to a Consent
Agreement dated April 2, 2009, and amended on May 22, 2009 and July 7,
2009, to purchase $174,300 face amount of the April 2009 Notes, which are
convertible into 1,743,000 shares of Common Stock. Baker
Brothers Life Sciences L.P.: 93,416,380 shares of Common Stock, comprised
of 11,882,595 shares of Common Stock, $73,101.63 of the June 2008 Notes,
which are convertible into 731,017 shares of Common Stock, $1,506,600 of
the April 2009 Notes, which are convertible into 15,066,000 shares of
Common Stock, $1,192,999.17 of July 2009 Notes, which are convertible into
11,929,992 shares of Common Stock, and $599,836.10 of September 2009
Notes, which are convertible into 5,998,361 shares of Common Stock. The
fund also holds an April 2009 Warrant to purchase 3,645,000 shares with an
exercise price of $0.50 per share, a July 2009 Warrant to purchase
1,307,500 shares with an exercise price of $1.00 per share, which warrant
is not exercisable until January 7, 2010, a July 2009 Warrant to purchase
2,407,747 shares with an exercise price of $1.00 per share, which warrant
is not exercisable until March 4, 2010, and a September 2009 Warrant to
purchase 1,499,590 shares with an exercise price of $1.00 per share, which
warrant is not exercisable until March 4, 2010. The fund also has the
right, pursuant to a Securities Purchase Agreement dated April 2, 2009, to
purchase an additional $1,458,000.00 face amount of the April 2009 Notes,
which are convertible into 14,580,000 shares of Common Stock, and a
warrant to purchase 3,645,000 shares with an exercise price of $0.50 per
share. The fund also has the right, pursuant to a Consent Agreement dated
April 2, 2009, and amended on May 22, 2009 and July 7, 2009, to purchase
$1,635,100 face amount of the April 2009 Notes, which are convertible into
16,351,000 shares of Common Stock. 14159, L.P.: 2,338,925
shares of Common Stock, comprised of 381,318 shares of Common Stock,
$2,226.62 of the June 2008 Notes, which are convertible into 22,267 shares
of Common Stock, $48,566.67 of the April 2009 Notes, which are convertible
into 485,667 shares of Common Stock, $38,443.80 of July 2009 Notes, which
are convertible into 384,438 shares of Common Stock, and $19,288.96 of
September 2009 Notes, which are convertible into 192,890 shares of Common
Stock. The fund also holds an April 2009 Warrant to purchase 117,500
shares with an exercise price of $0.50 per share, a July 2009 Warrant to
purchase 42,500 shares with an exercise price of $1.00 per share, which
warrant is not exercisable until January 7, 2010, a July 2009 Warrant to
purchase 77,427 shares with an exercise price of $1.00 per share, which
warrant is not exercisable until March 4, 2010, and a September 2009
Warrant to purchase 48,223 shares with an exercise price of $1.00 per
share, which warrant is not exercisable until March 4, 2010. The
fund also has the right, pursuant to a Securities Purchase Agreement dated
April 2, 2009, to purchase an additional $47,000.00 face amount of the
April 2009 Notes, which are convertible into 470,000 shares of Common
Stock, and a warrant to purchase 117,500 shares with an exercise price of
$0.50 per share. The fund also has the right, pursuant to a Consent
Agreement dated April 2, 2009, and amended on May 22, 2009 and July 7,
2009, to purchase $52,912.50 face amount of the April 2009 Notes, which
are convertible into 529,125 shares of Common Stock. By virtue
of their ownership of entities that have the power to control the
investment decisions of the Baker Bros. Affiliates, Felix J. Baker and
Julian C. Baker may each be deemed to be beneficial owners of shares held
or acquirable by the Baker Bros Affiliates and may be
deemed to have shared power to vote or direct the vote of and shared power
to dispose or direct the disposition of such
securities.
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(11)
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The BAM Opportunity Fund, L.P.
has the right to acquire (setting aside for these purposes the
restrictions described in footnote 1) 23,051,359 shares of Common Stock,
comprised of 6,157,564 shares of Common Stock, $18,254.50 of the April
2009 Notes, which are convertible into 182,545 shares of Common Stock, and
$479,500 of September 2009 Notes, which are convertible into 4,795,000
shares of Common Stock. The fund also holds a July 2009 Warrant to
purchase 717,500 shares with an exercise price of $1.00 per share, which
warrant is not exercisable until January 7, 2010, and a September 2009
Warrant to purchase 1,198,750 shares with an exercise price of $1.00 per
share, which warrant is not exercisable until March 4, 2010. The fund also
has the right, pursuant to a Securities Purchase Agreement dated April 2,
2009, to purchase an additional $800,000 face amount of the April 2009
Notes, which are convertible into 8,000,000 shares of Common Stock, and a
warrant to purchase 2,000,000 shares with an exercise price of $0.50 per
share. The BAM Opportunity Fund, L.P. is a private investment partnership,
the sole general partner of which is BAM Capital, LLC. As the sole general
partner, BAM Capital, LLC has the power to vote and dispose of the Common
Stock owned by the BAM Opportunity Fund, L.P. and, accordingly, may be
deemed the “beneficial owner” of such Common Stock. As the investment
manager of the BAM Opportunity Fund, L.P., BAM Management, LLC has the
power to vote and dispose of the Common Stock owned by the BAM Opportunity
Fund, L.P. and, accordingly, may be deemed the “beneficial owner” of such
Common Stock. The managing members of BAM Capital, LLC and BAM Management,
LLC are Hal Mintz and Ross Berman. Each of BAM Capital, LLC, BAM
Management, LLC, Hal Mintz and Ross Berman disclaims beneficial ownership
of all shares of Common Stock held or acquirable by the BAM Opportunity
Fund, L.P., except to the extent of their pecuniary interest
therein.
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(12)
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Boxer Capital LLC has the right
to acquire (setting aside for these purposes the restrictions described in
footnote 1) a total of 30,026,844 shares of Common Stock, comprised of
5,221,907 shares of Common Stock, $52,500 face amount of April 2009 Notes,
which are convertible into 525,000 shares of Common Stock, $469,868.53 of
July 2009 Notes, which are convertible into 4,698,685 shares of Common
Stock, and $120,371.47 of September 2009 Notes, which are convertible into
1,203,715 shares of Common Stock. The fund also holds a July 2009 Warrant
to purchase 470,000 shares with an exercise price of $1.00 per share,
which warrant is not exercisable until January 7, 2010, a July 2009
Warrant to purchase 1,174,671 shares with an exercise price of $1.00 per
share, which warrant is not exercisable until March 4, 2010, and a
September 2009 Warrant to purchase 300,929 shares with an exercise price
of $1.00 per share, which warrant is not exercisable until March 4, 2010.
The fund also has the right, pursuant to a Securities Purchase Agreement
dated April 2, 2009, to purchase an additional $525,000 face amount of the
April 2009 Notes, which are convertible into 5,250,000 shares of Common
Stock, and a warrant to purchase 1,312,500 shares with an exercise price
of $0.50 per share. The fund also has the right, pursuant to a Consent
Agreement dated April 2, 2009, and amended on May 22, 2009 and July 7,
2009, to purchase $986,943.70 face amount of the April 2009 Notes, which
are convertible into 9,869,437 shares of Common Stock. Boxer Asset
Management Inc. is the managing member and majority owner of Boxer Capital
LLC. Joseph Lewis is the sole indirect owner and controls Boxer Asset
Management Inc. Boxer Capital LLC has shared voting and dispositive power
with regard to the Common Stock, the warrants to purchase Common Stock,
and the notes convertible into shares of Common Stock it owns directly.
Boxer Asset Management Inc. and Joseph Lewis each have shared voting and
dispositive power with regard to the Common Stock owned directly by Boxer
Capital LLC. MVA Investors LLC, II is the independent, personal investment
vehicle of certain employees of Boxer Capital LLC and Tavistock Life
Sciences Company, which is a Delaware corporation and an affiliate of
Boxer Capital LLC. Investment decisions of Boxer Capital LLC are made by a
majority vote of its investment committee. As such, MVA Investors LLC, II
is not controlled by Boxer Capital LLC, Boxer Asset Management Inc. or
Joseph Lewis. MVA Investors LLC, II has sole voting and dispositive power
over the Common Stock, the warrants to purchase Common Stock and the notes
convertible into Common Stock owned by it. Neither Boxer Capital LLC,
Boxer Asset Management Inc. nor Mr. Lewis have any voting or dispositive
power with regard to the Common Shares held by MVA Investors LLC, II. For
more information regarding MVA Investors LLC, II, see footnote
20.
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(13)
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Cat Trail Private Equity Fund,
LLC has the right to acquire (setting aside for these purposes the
restrictions described in footnote 1) 44,911,703 shares of Common Stock,
comprised of 4,616,163 shares of Common Stock and $450,000 face amount of
April 2009 Notes, which are convertible into 4,500,000 shares of Common
Stock, and $1,078,643.21 face amount of July 2009 Notes, which are
convertible into 10,786,432 shares of Common Stock. The fund also holds an
April 2009 Warrant to purchase 1,125,000 shares with an exercise price of
$0.50 per share, a July 2009 Warrant to purchase 405,000 shares with an
exercise price of $1.00 per share, which warrant is not exercisable until
January 7, 2010, and a July 2009 Warrant to purchase 2,291,608 shares with
an exercise price of $1.00 per share, which warrant is not exercisable
until March 4, 2010. The fund also has the right, pursuant to a Securities
Purchase Agreement dated April 2, 2009, to purchase an additional $450,000
face amount of the April 2009 Notes, which are convertible into 4,500,000
shares of Common Stock, and a warrant to purchase 1,125,000 shares with an
exercise price of $0.50 per share. The fund also has the right, pursuant
to a Consent Agreement dated April 2, 2009, and amended on May 22, 2009
and July 7, 2009, to purchase $1,556,250 face amount of the April 2009
Notes, which are convertible into 15,562,500 shares of Common Stock. David
Dekker, as the managing member of Cat Trail Private Equity, LLC, may be
deemed to beneficially own the shares of Common Stock held or acquirable
by Cat Trail Private Equity, LLC. Mr. Dekker shares voting and dispositive
power over such shares with Cat Trail Private Equity, LLC. Mr. Dekker
disclaims beneficial ownership of all shares reported herein except to the
extent of his pecuniary interest
therein.
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(14)
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Arcus Ventures Fund has the right
to acquire (setting aside for these purposes the restrictions described in
footnote 1) 23,007,926 shares of Common Stock. The fund owns 5,920,156
shares of Common Stock and $458,321.61 of July 2009 Notes, which are
convertible into 4,583,216 shares of Common Stock. The fund also holds an
April 2009 Warrant to purchase 562,500 shares of Common Stock with an
exercise price of $0.50 per share, a July 2009 Warrant to purchase 202,500
shares with an exercise price of $1.00 per share, which warrant is not
exercisable until January 7, 2010, and a July 2009 Warrant to purchase
1,145,804 shares with an exercise price of $1.00 per share, which warrant
is not exercisable until March 4, 2010. The fund also has the right,
pursuant to a Securities Purchase Agreement dated April 2, 2009, to
purchase an additional $225,000 face amount of the April 2009 Notes, which
are convertible into 2,250,000 shares of Common Stock, and a warrant to
purchase 562,500 shares with an exercise price of $0.50 per share. The
fund also has the right, pursuant to a Consent Agreement dated April 2,
2009, and amended on May 22, 2009 and July 7, 2009, to purchase $778,125
face amount of the April 2009 Notes, which are convertible into 7,781,250
shares of Common Stock. As the general partner of Arcus Ventures Fund,
Arcus Ventures Management, LLC may be deemed to be the beneficial owner of
the shares held or acquirable by the fund. As members of Arcus Ventures
Management, LLC, James B. Dougherty and Steven Soignet may be deemed to be
the beneficial owners of the shares held or acquirable by the fund. Each
of Messrs. Dougherty and Soignet disclaims beneficial ownership of the
shares of Common Stock held or acquirable by the fund, except to the
extent of his pecuniary interest
therein.
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(15)
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Cranshire Capital LP has the
right to acquire (setting aside for these purposes the restrictions
described in footnote 1) 2,450,192 shares of Common Stock, comprised of
1,057,692 shares of Common Stock and $35,000 of September 2009 Notes,
which are convertible into 350,000 shares of Common Stock. The fund also
holds an April 2009 Warrant to purchase 150,000 shares of Common Stock
with an exercise price of $0.50 per share, a July 2009 Warrant to purchase
55,000 shares of Common Stock with an exercise price of $1.00 per share,
which warrant is not exercisable until January 7, 2010, and a September
2009 Warrant to purchase 87,500 shares with an exercise price of $1.00 per
share, which warrant is not exercisable until March 4, 2010. The fund also
has the right, pursuant to a Securities Purchase Agreement dated April 2,
2009, to purchase an additional $60,000 face amount of the April 2009
Notes, which are convertible into 600,000 shares of Common Stock, and a
warrant to purchase 150,000 shares with an exercise price of $0.50 per
share. Downsview Capital, Inc. (“Downsview”) is the general partner of
Cranshire Capital LP, and consequently, has voting control and investment
discretion over securities held by Cranshire Capital LP. Mitchell P.
Kopin, President of Downsview, has voting control over Downsview. As a
result of the foregoing, each of Mr. Kopin and Downsview may be deemed to
have beneficial ownership (as determined under Section 13(d) of the
Exchange Act) of the shares of Common Stock beneficially owned by
Cranshire Capital LP.
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(16)
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Rockmore Investment Master Fund
Ltd. has the right to acquire (setting aside for these purposes the
restrictions described in footnote 1) 2,372,973 shares of Common Stock,
comprised of 1,114,710 shares of Common Stock, $839.06 face amount of June
2008 Notes, which are convertible into 8,390 shares of Common Stock,
$15,000 face amount of April 2009 Notes, which are convertible into
150,000 shares of Common Stock, $22,341.93 face amount of July 2009 Notes,
which are convertible into 223,419 shares of Common Stock, and $14,243.07
of September 2009 Notes, which are convertible into 142,431 shares of
Common Stock. The fund also holds an April 2009 Warrant to purchase 75,000
shares with an exercise price of $0.50 per share, a July 2009 Warrant to
purchase 27,500 shares with an exercise price of $1.00 per share, which
warrant is not exercisable until January 7, 2010, a July 2009 Warrant to
purchase 28,355 shares with an exercise price of $1.00 per share, which
warrant is not exercisable until March 4, 2010, and a September 2009
Warrant to purchase 35,608 shares with an exercise price of $1.00 per
share, which warrant is not exercisable until March 4, 2010. The fund also
has the right, pursuant to a Securities Purchase Agreement dated April 2,
2009, to purchase an additional $30,000 face amount of the April 2009
Notes, which are convertible into 300,000 shares of Common Stock, and a
warrant to purchase 75,000 shares with an exercise price of $0.50 per
share. The fund also has the right, pursuant to a Consent Agreement dated
April 2, 2009, and amended on May 22, 2009 and July 7, 2009, to purchase
$19,256 face amount of the April 2009 Notes, which are convertible into
192,560 shares of Common Stock. Rockmore Capital, LLC (“Rockmore Capital”)
and Rockmore Partners, LLC (“Rockmore Partners”), each a limited liability
company formed under the laws of the State of Delaware, serve as the
investment manager and general partner, respectively, to Rockmore
Investments (US) LP, a Delaware limited partnership, which invests all of
its assets through Rockmore Investment Master Fund Ltd., an exempted
company formed under the laws of Bermuda. By reason of such relationships,
Rockmore Capital and Rockmore Partners may be deemed to share dispositive
power over the shares of Common Stock owned by Rockmore Investment Master
Fund Ltd. Rockmore Capital and Rockmore Partners disclaim beneficial
ownership of such shares of Common Stock. Rockmore Partners has delegated
authority to Rockmore Capital regarding the portfolio management decisions
with respect to the shares of Common Stock owned by Rockmore Investment
Master Fund Ltd. and, as of September 16, 2009, Mr. Bruce T. Bernstein and
Mr. Brian Daly, as officers of Rockmore Capital, are responsible for the
portfolio management decisions of the shares of Common Stock owned by
Rockmore Investment Master Fund Ltd. By reason of such authority, Messrs.
Bernstein and Daly may be deemed to share dispositive power over the
shares of Common Stock owned by Rockmore Investment Master Fund Ltd.
Messrs. Bernstein and Daly disclaim beneficial ownership of such shares of
Common Stock and neither of such persons has any legal right to maintain
such authority. No other person has sole or shared voting or dispositive
power with respect to the shares of Common Stock as those terms are used
for purposes under Regulation 13D-G of the Exchange Act. No person or
“group” (as that term is used in Section 13(d) of the Exchange Act, or the
SEC’s Regulation 13D-G) controls Rockmore Investment Master Fund
Ltd.
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(17)
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RRC BioFund, LP has the right to
acquire (setting aside for these purposes the restrictions described in
footnote 1) 1,225,096 shares of Common Stock, comprised of 528,846 shares
of Common Stock and $17,500 of September 2009 Notes, which are convertible
into 175,000 shares of Common Stock. The fund also holds an April 2009
Warrant to purchase 75,000 shares with an exercise price of $0.50 per
share, a July 2009 Warrant to purchase 27,500 shares with an exercise
price of $1.00 per share, which warrant is not exercisable until January
7, 2010, and a September 2009 Warrant to purchase 43,750 shares with an
exercise price of $1.00 per share, which warrant is not exercisable until
March 4, 2010. The fund also has the right, pursuant to a Securities
Purchase Agreement dated April 2, 2009, to purchase an additional $30,000
face amount of the April 2009 Notes, which are convertible into 300,000
shares of Common Stock, and a warrant to purchase 75,000 shares with an
exercise price of $0.50 per share. As manager of RRC Management, LLC, the
sole general partner of RRC BioFund, LP, James A. Silverman has the sole
authority to vote and dispose of all of the shares held by RRC BioFund,
LP.
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(18)
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Rodman & Renshaw, LLC is a
broker-dealer under the Exchange
Act.
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(19)
|
Rodman & Renshaw, LLC has the
right to acquire (setting aside for these purposes the restrictions
described in footnote 1) 12,935,750 shares of Common Stock, comprised of
72,000 shares of Common Stock, $41,554.49 of July 2009 Notes, which are
convertible into 415,545 shares of Common Stock, and $5,625.51 of
September 2009 Notes, which are convertible into 56,255 shares of Common
Stock. They also hold a June 2008 Warrant to purchase 800,000 shares with
an exercise price of $1.00 per share, an April 2009 Warrant to purchase
2,566,000 shares with an exercise price of $0.50 per share, a July 2009
Warrant to purchase 1,827,500 shares with an exercise price of $1.00 per
share, which warrant is not exercisable until January 7, 2010, a July 2009
Warrant to purchase 4,303,886 shares with an exercise price of $1.00 per
share, which warrant is not exercisable until March 4, 2010, and a
September 2009 Warrant to purchase 1,814,064 shares with an exercise price
of $1.00 per share, which warrant is not exercisable until March 4, 2010 .
Rodman has the right, pursuant to a Securities Purchase Agreement dated
April 2, 2009, to purchase an additional $30,000 face amount of the April
2009 Notes, which are convertible into 300,000 shares of Common Stock, and
a warrant to purchase 75,000 shares with an exercise price of $0.50 per
share. Rodman also has the right, pursuant to a Consent Agreement dated
April 2, 2009, and amended on May 22, 2009 and July 7, 2009, to purchase
$70,550 face amount of the April 2009 Notes, which are convertible into
705,500 shares of Common Stock. 15,800,000 of the total shares set forth
above were acquired by Rodman & Renshaw, LLC as compensation in
connection with its service as placement agent to the Company for the June
2008 financing, April 2009 financing, July 2009 financing and September
2009 financing. Dave Horin, the Chief Financial Officer of Rodman &
Renshaw, LLC, has sole voting and dispositive power over the shares held
by Rodman & Renshaw,
LLC.
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(20)
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MVA Investors LLC, II has the
right to acquire (setting aside for these purposes the restrictions
described in footnote 1) 2,423,691 shares of Common Stock, comprised of
618,815 shares of Common Stock, $111,448.90 of July 2009 Notes, which are
convertible into 1,114,489 shares of Common Stock, and $32,941.16 of
September 2009 Notes, which are convertible into 329,412 shares of Common
Stock. They also hold a July 2009 Warrant to purchase 278,622 shares with
an exercise price of $1.00 per share, which warrant is not exercisable
until March 4, 2010, and a September 2009 Warrant to purchase 82,353
shares with an exercise price of $1.00 per share, which warrant is not
exercisable until March 4, 2010. MVA Investors LLC, II has sole voting and
dispositive power over the Common Stock, the warrants to purchase Common
Stock and the notes convertible into Common Stock owned by it. MVA
Investors LLC, II is the independent, personal investment vehicle of
certain employees of Boxer Capital LLC and Tavistock Life Sciences
Company, which is a Delaware corporation and an affiliate of Boxer Capital
LLC. As such, MVA Investors LLC, II is not controlled by Boxer Capital,
Boxer Asset Management Inc. or Joseph Lewis. Neither Boxer Capital LLC,
Boxer Asset Management Inc. nor Mr. Lewis have any voting or dispositive
power with regard to the Common Shares held by MVA Investors LLC, II.
Investment decisions of MVA Investors LLC, II are made by a majority vote
of its investment committee. The purchase, disposition and voting of all
shares held by MVA Investors LLC, II is controlled by a majority vote of
an investment committee comprised of Shehan Dissanayake, Neil Reisman,
Aaron Davis and Christopher Fuglesang. For additional
information regarding Boxer Capital LLC, see footnote
12.
|
ADDITIONAL
INFORMATION ABOUT TRANSACTIONS BETWEEN THE COMPANY AND THE SELLING
STOCKHOLDERS
The
following disclosure provides additional information about the financing
transactions between the Company and the selling stockholders, specifically the
June 2008 financing, April 2009 financing, July 2009 financing and September
2009 financing.
Dollar Value of Underlying
Securities
The
following table presents the total dollar value of the securities underlying the
July 2009 Notes, July 2009 Warrants and September 2009 Notes that are registered
for resale on this registration statement.
Date of Sale
|
|
Type of Security
|
|
Shares of Common
Stock Underlying
Security
|
|
|
Closing Price of
Common Stock on
Date of Sale
|
|
|
Total Dollar Value of
Common Stock
Underlying Security on
the Date of Sale
|
|
July
7, 2009
|
|
July
2009 Notes
|
|
|
12,364,495 |
|
|
$ |
0.39 |
|
|
$ |
4,822,153.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July
7, 2009
|
|
July
2009 Warrants
|
|
|
1,215,000 |
|
|
$ |
0.39 |
|
|
$ |
473,850.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
4, 2009
|
|
July
2009 Notes
|
|
|
2,209,646 |
|
|
$ |
0.40 |
|
|
$ |
883,858.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
4, 2009
|
|
September
2009 Notes
|
|
|
1,532,500 |
|
|
$ |
0.40 |
|
|
$ |
613,000.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,792,861.45 |
|
Payments to the Selling
Stockholders and Affiliates
The gross
proceeds to the Company from the sale of the July 2009 Notes, July 2009 Warrants
and September 2009 Notes registered for resale on this registration statement
were approximately $1,610,664.10. The following table summarizes the
maximum potential payments we may be required to make to the selling
stockholders. For purposes of this table, we have assumed that the
selling stockholders exercise all of the July 2009 Warrants on a cashless
basis. Unless otherwise stated, the table reflects all of the
payments of fees, interest and premiums due during the term of the July 2009
Notes, July 2009 Warrants and September 2009 Notes.
Selling Stockholder
|
|
Total Gross
Proceeds
Payable to
Company (1)
|
|
|
Total Maximum
Payments by
Company (2)
|
|
|
Net Proceeds to Company (3)
|
|
Tang
Capital Partners, LP
|
|
$ |
506,036.40 |
(4) |
|
$ |
91,086.55 |
(5) |
|
$ |
414,949.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boxer
Capital LLC
|
|
$ |
188,000.00 |
(6) |
|
$ |
33,840.00 |
(7) |
|
$ |
154,160.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cat
Trail Private Equity Fund, LLC
|
|
$ |
162,000.00 |
(8) |
|
$ |
29,160.00 |
(9) |
|
$ |
132,840.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arcus
Ventures Fund
|
|
$ |
81,000.00 |
(10) |
|
$ |
14,580.00 |
(11) |
|
$ |
66,420.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cranshire
Capital LP
|
|
$ |
22,000.00 |
(12) |
|
$ |
3,960.00 |
(13) |
|
$ |
18,040.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rockmore
Investment Master Fund Ltd.
|
|
$ |
11,000.00 |
(14) |
|
$ |
1,980.00 |
(15) |
|
$ |
9,020.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RRC
BioFund, LP
|
|
$ |
11,000.00 |
(14) |
|
$ |
1,980.00 |
(15) |
|
$ |
9,020.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rodman
& Renshaw, LLC
|
|
$ |
11,000.00 |
(14) |
|
$ |
129,432.88 |
(16) |
|
$ |
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
667,
L.P.
|
|
$ |
31,383.00 |
(17) |
|
$ |
5,648.94 |
(18) |
|
$ |
25,734.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
667,
L.P. #2
|
|
$ |
38,109.00 |
(19) |
|
$ |
6,859.62 |
(20) |
|
$ |
31,249.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baker
Brothers Life Sciences, L.P.
|
|
$ |
386,358.70 |
(21) |
|
$ |
69,544.57 |
(22) |
|
$ |
316,814.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14159,
L.P.
|
|
$ |
9,527.00 |
(23) |
|
$ |
1,714.86 |
(24) |
|
$ |
7,812.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BAM
Opportunity Fund, LP
|
|
$ |
153,250.00 |
(25) |
|
$ |
24,520.00 |
(26) |
|
$ |
128,730.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MVA
Investors II, LLC
|
|
$ |
0.00 |
(27) |
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
$ |
1,314,789.56 |
|
(1) Total
gross proceeds payable to us. If the selling stockholders exercise
the July 2009 Warrants on a cash basis, then the additional gross proceeds
payable to us will be $1,215,000.
(2) This
total does not include the potential payment by the Company of liquidated
damages under the July 2009 Notes, July 2009 Warrants and September 2009 Notes
for failure to promptly deliver shares of common stock upon conversion/exercise,
as such payments are subject to multiple conditions and variables making the
calculation of such payments impossible at this time.
(3) Total
net proceeds to us calculated by subtracting column #3 from column #2, to the
extent the result is in excess of $0. Please note that this amount is
the minimum total net proceeds to the Company in connection with the sale of the
July 2009 Notes, July 2009 Warrants and September 2009 Notes; the actual net
proceeds to the Company will depend upon the actual conversion/exercise of the
overlying securities as well as the amount of any liquidated damages payable by
the Company to the selling stockholders. If the selling stockholders
exercise the July 2009 Warrants on a cash basis, then the total net proceeds
payable to us will be $2,529,789.56. The expenses set forth in column
#3 above will not change in the event of the cash exercise of the July 2009
Warrants.
(4) Consists
of July 2009 Notes issued on July 7, 2009 for a face amount of $378,330.90 and
July 2009 Notes issued on September 4, 2009 for a face amount of
$127,705.50.
(5) Consists
of interest payable on the July 2009 Notes of 40,482.91 for each year of the
two-year term of the July 2009 Notes and $50,603.64 payable as the maximum
amount of liquidated damages on the July 2009 Notes registered for resale by the
selling stockholder on this registration statement.
(6) Consists
of July 2009 Notes issued on July 7, 2009 for a face amount of
$188,000.00.
(7) Consists
of interest payable on the July 2009 Notes of 15,040.00 for each year of the
two-year term of the July 2009 Notes and $18,800.00 payable as the maximum
amount of liquidated damages on the July 2009 Notes registered for resale by the
selling stockholder on this registration statement.
(8) Consists
of July 2009 Notes issued on July 7, 2008 for a face amount of
$162,000.00.
(9) Consists
of interest payable on the July 2009 Notes of $12,960.00 for each year of the
two-year term of the July 2009 Notes and $16,200.00 payable as the maximum
liquidated damages on the July 2009 Notes registered for resale by the selling
stockholder on this registration statement.
(10) Consists
of July 2009 Notes issued on July 7, 2009 for a face amount of
$81,000.00.
(11) Consists
of interest payable on the July 2009 Notes of $6,480.00 for each year of the
two-year term of the July 2009 Notes and $8,100.00 payable as the maximum
liquidated damages on the July 2009 Notes registered for resale by the selling
stockholder on this registration statement.
(12) Consists
of July 2009 Notes issued on July 7, 2009 for a face amount of
$22,000.00.
(13) Consists
of interest payable on the July 2009 Notes of $1,760.00 for each year of the
two-year term of the July 2009 Notes and $2,200.00 payable as the maximum
liquidated damages on the July 2009 Notes registered for resale by the selling
stockholder on this registration statement.
(14) Consists
of July 2009 Notes issued on July 7, 2009 for a face amount of
$11,000.00.
(15) Consists
of interest payable on the July 2009 Notes of $880.00 for each year of the
two-year term of the July 2009 Notes and $1,100.00 payable as the maximum
liquidated damages on the July 2009 Notes registered for resale by the selling
stockholder on this registration statement.
(16) Consists
of interest payable on the July 2009 Notes of $880.00 for each year of the
two-year term of the July 2009 Notes and $1,100.00 payable as the maximum
liquidated damages on the July 2009 Notes registered for resale by the selling
stockholder on this registration statement. Also consists of
placement agent fees of approximately $127,452.88 (which is the cash payment
made to Rodman & Renshaw, LLC as placement agent for the convertible notes
registered on this registration statement, and excludes a July 2009 Warrant to
purchase 1,800,000 shares of common stock issued on July 7, 2009, a July 2009
Warrant to purchase 4,200,000 shares of common stock issued on September 4,
2009, and a September 2009 Warrant to purchase 1,800,000 shares of common stock
issued on September 4, 2009) to Rodman & Renshaw, LLC as placement agent for
the July 2009 financing and the September 2009 financing.
(17) Consists
of July 2009 Notes issued on July 7, 2009 for a face amount of
$31,383.00.
(18) Consists
of interest payable on the July 2009 Notes of $2,510.64 for each year of the
two-year term of the July 2009 Notes and $3,138.30 payable as the maximum
liquidated damages on the July 2009 Notes registered for resale by the selling
stockholder on this registration statement.
(19) Consists
of July 2009 Notes issued on July 7, 2009 for a face amount of
$38,109.00.
(20) Consists
of interest payable on the July 2009 Notes of $3,048.72 for each year of the
two-year term of the July 2009 Notes and $3,810.90 payable as the maximum
liquidated damages on the July 2009 Notes registered for resale by the selling
stockholder on this registration statement.
(21) Consists
of July 2009 Notes issued on July 7, 2009 for a face amount of $293,099.60 and
July 2009 Notes issued on September 4, 2009 for a face amount of
$93,259.10.
(22) Consists
of interest payable on the July 2009 Notes of $30,908.70 for each year of the
two-year term of the July 2009 Notes and $38,635.90 payable as the maximum
liquidated damages on the July 2009 Notes registered for resale by the selling
stockholder on this registration statement.
(23) Consists
of July 2009 Notes issued on July 7, 2009 for a face amount of
$9,527.00.
(24) Consists
of interest payable on the July 2009 Notes of $762.16 for each year of the
two-year term of the July 2009 Notes and $952.70 payable as the maximum
liquidated damages on the July 2009 Notes registered for resale by the selling
stockholder on this registration statement.
(25) Consists
of September 2009 Notes for a face amount of 153,250.00.
(26) Consists
of interest payable on the September 2009 Notes of $12,260.00 for each year of
the two-year term of the September 2009 Notes.
(27) MVA
Investors II, LLC is not registering any July 2009 Notes, July 2009 Warrants or
September 2009 Notes for resale on this registration statement.
Potential Profits on
Conversion
The
following table summarizes the potential profit the selling stockholders could
realize upon the sale of all of the shares underlying the July 2009 Notes, July
2009 Warrants and September 2009 Notes registered for resale on this
registration statement.
Selling
Stockholder
|
|
Security
|
|
Shares
of
Common
Stock
Underlying
Security
(1)
|
|
|
Closing
Price
of
Common
Stock
on
Date
of
Sale
|
|
|
Market
Price
of
Total
Number
of
Shares
Underlying
Security
on
Date
of Sale
(2)
|
|
|
Conversion/
Exercise
Price
of
Total
Number
of
Shares
Underlying
Security
|
|
|
Total
Potential
Profit
the
Selling
Stockholders
Could
Realize
As a
Result
of the
Conversion
/Exercise
Discount
for
the
Security
(3)
|
|
Tang
Capital Partners, LP
|
|
July
2009 Notes
|
|
|
3,783,309 |
|
|
$ |
0.39 |
(4) |
|
$ |
1,475,490.51 |
|
|
$ |
378,330.90 |
(5) |
|
$ |
1,097,159.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boxer
Capital LLC
|
|
July
2009 Notes
|
|
|
1,880,000 |
|
|
$ |
0.39 |
(4) |
|
$ |
733,200.00 |
|
|
$ |
188,000.00 |
(5) |
|
$ |
545,200.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cat
Trail Private Equity Fund, LLC
|
|
July
2009 Notes
|
|
|
1,620,000 |
|
|
$ |
0.39 |
(4) |
|
$ |
631,800.00 |
|
|
$ |
162,000.00 |
(5) |
|
$ |
469,800.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arcus
Ventures Fund
|
|
July
2009 Notes
|
|
|
810,000 |
|
|
$ |
0.39 |
(4) |
|
$ |
315,900.00 |
|
|
$ |
81,000.00 |
(5) |
|
$ |
234,900.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cranshire
Capital LP
|
|
July
2009 Notes
|
|
|
220,000 |
|
|
$ |
0.39 |
(4) |
|
$ |
85,800.00 |
|
|
$ |
22,000.00 |
(5) |
|
$ |
63,800.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rockmore
Investment Master Fund Ltd.
|
|
July
2009 Notes
|
|
|
110,000 |
|
|
$ |
0.39 |
(4) |
|
$ |
42,900.00 |
|
|
$ |
11,000.00 |
(5) |
|
$ |
31,900.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RRC
BioFund, LP
|
|
July
2009 Notes
|
|
|
110,000 |
|
|
$ |
0.39 |
(4) |
|
$ |
42,900.00 |
|
|
$ |
11,000.00 |
(5) |
|
$ |
31,900.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rodman
& Renshaw, LLC
|
|
July
2009 Notes
|
|
|
110,000 |
|
|
$ |
0.39 |
(4) |
|
$ |
42,900.00 |
|
|
$ |
11,000.00 |
(5) |
|
$ |
31,900.00 |
|
Selling
Stockholder
|
|
Security
|
|
Shares
of
Common
Stock
Underlying
Security
(1)
|
|
|
Closing
Price
of
Common
Stock
on
Date
of
Sale
|
|
|
Market
Price
of
Total
Number
of
Shares
Underlying
Security
on
Date
of Sale
(2)
|
|
|
Conversion/
Exercise
Price
of
Total
Number
of
Shares
Underlying
Security
|
|
|
Total
Potential
Profit
the
Selling
Stockholders
Could
Realize
As a
Result
of the
Conversion
/Exercise
Discount
for
the
Security
(3)
|
|
667,
L.P.
|
|
July
2009 Notes
|
|
|
381,090 |
|
|
$ |
0.39 |
(4) |
|
$ |
148,625.10 |
|
|
$ |
38,109.00 |
(5) |
|
$ |
110,516.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
667,
L.P. #2
|
|
July
2009 Notes
|
|
|
313,830 |
|
|
$ |
0.39 |
(4) |
|
$ |
122,393.70 |
|
|
$ |
31,383.00 |
(5) |
|
$ |
91,010.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baker
Brothers Life Sciences, L.P.
|
|
July
2009 Notes
|
|
|
2,930,996 |
|
|
$ |
0.39 |
(4) |
|
$ |
1,143,088.44 |
|
|
$ |
293,099.60 |
(5) |
|
$ |
849,988.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14159,
L.P.
|
|
July
2009 Notes
|
|
|
95,270 |
|
|
$ |
0.39 |
(4) |
|
$ |
37,155.30 |
|
|
$ |
9,527.00 |
(5) |
|
$ |
27,628.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MVA
Investors II, LLC
|
|
July
2009 Notes
|
|
|
0 |
|
|
$ |
0.39 |
(4) |
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boxer
Capital LLC
|
|
July
2009 Warrants
|
|
|
470,000 |
|
|
$ |
0.39 |
(4) |
|
$ |
183,300.00 |
|
|
$ |
470,000.00 |
(6) |
|
$ |
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cat
Trail Private Equity Fund, LLC
|
|
July
2009 Warrants
|
|
|
405,000 |
|
|
$ |
0.39 |
(4) |
|
$ |
157,950.00 |
|
|
$ |
405,000.00 |
(6) |
|
$ |
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arcus
Ventures Fund
|
|
July
2009 Warrants
|
|
|
202,500 |
|
|
$ |
0.39 |
(4) |
|
$ |
78,975.00 |
|
|
$ |
202,500.00 |
(6) |
|
$ |
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cranshire
Capital LP
|
|
July
2009 Warrants
|
|
|
55,000 |
|
|
$ |
0.39 |
(4) |
|
$ |
21,450.00 |
|
|
$ |
55,000.00 |
(6) |
|
$ |
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rockmore
Investment Master Fund Ltd.
|
|
July
2009 Warrants
|
|
|
27,500 |
|
|
$ |
0.39 |
(4) |
|
$ |
10,725.00 |
|
|
$ |
27,500.00 |
(6) |
|
$ |
0.00 |
|
Selling
Stockholder
|
|
Security
|
|
Shares
of
Common
Stock
Underlying
Security
(1)
|
|
|
Closing
Price
of
Common
Stock
on
Date
of
Sale
|
|
|
Market
Price
of
Total
Number
of
Shares
Underlying
Security
on
Date
of Sale
(2)
|
|
|
Conversion/
Exercise
Price
of
Total
Number
of
Shares
Underlying
Security
|
|
|
Total
Potential
Profit
the
Selling
Stockholders
Could
Realize
As a
Result
of the
Conversion
/Exercise
Discount
for
the
Security
(3)
|
|
RRC
BioFund, LP
|
|
July
2009 Warrants
|
|
|
27,500 |
|
|
$ |
0.39 |
(4) |
|
$ |
10,725.00 |
|
|
$ |
27,500.00 |
(6) |
|
$ |
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rodman
& Renshaw, LLC
|
|
July
2009 Warrants
|
|
|
27,500 |
|
|
$ |
0.39 |
(4) |
|
$ |
10,725.00 |
|
|
$ |
27,500.00 |
(6) |
|
$ |
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MVA
Investors II, LLC
|
|
July
2009 Warrants
|
|
|
0 |
|
|
$ |
0.39 |
(4) |
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tang
Capital Partners, LP
|
|
July
2009 Notes
|
|
|
1,277,055 |
|
|
$ |
0.40 |
(7) |
|
$ |
510,822.00 |
|
|
$ |
127,705.50 |
(5) |
|
$ |
383,116.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baker
Brothers Life Sciences, L.P.
|
|
July
2009 Notes
|
|
|
932,591 |
|
|
$ |
0.40 |
(7) |
|
$ |
373,036.40 |
|
|
$ |
93,259.10 |
(5) |
|
$ |
279,777.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MVA
Investors II, LLC
|
|
July
2009 Notes
|
|
|
0 |
|
|
$ |
0.40 |
(7) |
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BAM
Opportunity Fund, L.P.
|
|
September
2009 Notes
|
|
|
1,532,500 |
|
|
$ |
0.40 |
(7) |
|
$ |
613,000.00 |
|
|
$ |
153,250.00 |
(5) |
|
$ |
459,750.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MVA
Investors II, LLC
|
|
September
2009 Notes
|
|
|
0 |
|
|
$ |
0.40 |
(7) |
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,708,347.35 |
|
(1) Assumes
no interest payments on the July 2009 Notes or September 2009 Notes and complete
conversion/exercise of the July 2009 Notes, September 2009 Notes and July 2009
Warrants. This total does not reflect the beneficial ownership
limitations pursuant to the terms of the July 2009 Notes, September 2009 Notes
and July 2009 Warrants.
(2) Calculated
by multiplying column #3 and column #4.
(3) Calculated
by subtracting column #6 from column #5, to the extent the result is in excess
of $0. Please note that actual profits to the selling stockholders will depend
upon the market price of our common stock at the time of sale by the selling
stockholders, which could be more or less than the closing price on the date the
overlying securities were sold to the selling stockholders.
(4) Both
the July 2009 Notes and the July 2009 Warrants were sold to the selling
stockholders on July 7, 2009.
(5) Calculated
by multiplying column #3 by the conversion price of $0.01 per
share.
(6) Calculated
by multiplying column #3 by the exercise price of $1.00 per share.
(7) Both
the additional July 2009 Notes and the September 2009 Notes were sold to the
selling stockholders on September 4, 2009.
Subject
to the terms of the July 2009 Notes and September 2009 Notes, we will adjust the
conversion rate for:
|
·
|
stock
splits or combinations of the outstanding shares of our common
stock;
|
|
·
|
dividends
or distributions on our common stock payable in shares of our common stock
to all or substantially all holders of our common
stock;
|
|
·
|
dividends
or distributions on our common stock payable in other than shares of our
common stock to all or substantially all holders of our common
stock;
|
|
·
|
reclassifications,
exchanges or substitutions to our common stock whereby our common stock is
changed to the same or different number of shares or other securities of
any class or classes of stock or other property, other than by way of a
stock split, combination of shares or stock dividends or a reorganization,
merger, consolidation, or sale of
assets;
|
|
·
|
distributions
to all or substantially all holders of our common stock of certain rights
or warrants to purchase or subscribe for shares of our common stock, or
securities convertible into or exchangeable or exercisable for shares of
our common stock, at a price per share that is less than the applicable
conversion price then in effect, or if after any such issuance, the price
per share is amended or adjusted and such price as amended or adjusted is
less than the applicable conversion
price;
|
|
·
|
in
the event of a reorganization, merger, consolidation or sale of assets;
and
|
|
·
|
issuances
or sales by us of additional shares of common stock at a price per share
less than the conversion price then in effect or without
consideration.
|
Subject
to the provisions of the July 2009 Notes and September 2009 Notes, if
we:
|
·
|
distribute
shares of common stock in accordance with the second bullet point above,
then we will generally decrease the conversion price then in effect
immediately prior to such event by multiplying the applicable conversion
price then in effect by a fraction the numerator of which shall be the
total number of shares of common stock issued and outstanding immediately
prior to the time of such issuance or the close of business on such record
date and the denominator of which shall be the total number of shares of
common stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date plus the number of
shares of common stock issuable in payment of such dividend or
distribution.
|
|
·
|
make
distributions or issue dividends in other than shares of common stock in
accordance with the third bullet point above, then, we will make an
appropriate revision to the applicable conversion price and provision will
be made so that upon conversion of the July 2009 Notes and September 2009
Notes, the holders will receive (in addition to the number of shares of
common stock they are entitled to upon conversion) the number of
securities or other property that they would have received had the July
2009 Notes or September 2009 Notes, respectively, been converted into
common stock on the date of such event and had thereafter, during the
period from the date of such event to and including the conversion date,
retained such securities and any distributions or assets, applying all
adjustments called for during such period pursuant to the terms of the
July 2009 Notes and September 2009 Note with respect to the rights of the
holders of the July 2009 Notes and September 2009 Notes; however, if a
record date has been fixed and the dividend is not fully paid or such
distribution is not fully made on the date fixed for such payment or
distribution, then the conversion price will be adjusted as provided in
this bullet point as of the time of actual payment of such dividends or
distributions.
|
|
·
|
make
distributions in accordance with the fifth or seventh bullet point above,
the applicable conversion price upon each such issuance or distribution
shall be reduced to a price equal to the consideration per share paid for
such additional shares of common stock; however, the amount of
consideration received for such additional shares of common stock shall
not include the value of any additional securities or other rights
received in connection with such issuance or distribution of additional
shares of common stock.
|
The July
2009 Warrants are subject to customary pro rata anti-dilution provisions for
stock splits or recapitalizations. The exercise price and the number of shares
of common stock are subject to adjustment in the event of stock splits, stock
dividends on our common stock, stock combinations or similar events affecting
our common stock. In addition, in the event we consummate any merger,
consolidation, sale or other reorganization event in which our common stock is
converted into or exchanged for securities, cash or other property or we
consummate a sale of substantially all of our assets, then following that event,
the holders of outstanding July 2009 Warrants may be entitled to receive upon
exercise of the July 2009 Warrants securities which the holders would have
received if they had exercised their July 2009 Warrants prior to such
reorganization event or the repurchase of the July 2009 Warrant by the Company
for cash.
Total Potential Selling
Stockholder Profit from Other Securities
The
following table summarizes the total potential profit the selling stockholders
could realize as a result of any conversion/exercise discounts for shares of
common stock underlying convertible securities, other than the July 2009 Notes,
July 2009 Warrants and September 2009 Notes registered for resale on this
registration statement, currently held by the selling stockholders.
Selling
Stockholder
|
|
Security
|
|
Shares
of
Common
Stock
Underlying
Security
(1)
|
|
|
Closing
Price
of
Common
Stock
on
Date
of
Sale
|
|
|
Market
Price of
Total
Number
of
Shares
Underlying
Security
on
Date
of Sale(2)
|
|
|
Conversion/Exercise
Price
of Total
Number
of
Shares
Underlying
Security
|
|
|
Total
Potential
Profit
the
Selling
Stockholders
Could
Realize
As
a Result of
the
Conversion
/Exercise
Discount
for the
Security
(3)
|
|
667,
L.P.
|
|
June
2008 Notes
|
|
|
98,350 |
|
|
$ |
10.00 |
(4) |
|
$ |
983,500.00 |
|
|
$ |
9,835.00 |
(5)
(6) |
|
$ |
973,665.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
667,
L.P. #2
|
|
June
2008 Notes
|
|
|
78,524 |
|
|
$ |
10.00 |
(4) |
|
$ |
785,240.00 |
|
|
$ |
7,852.40 |
(5)
(6) |
|
$ |
777,387.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baker
Brothers Life Sciences, L.P.
|
|
June
2008 Notes
|
|
|
731,017 |
|
|
$ |
10.00 |
(4) |
|
$ |
7,310,170.00 |
|
|
$ |
73,101.70 |
(5)
(6) |
|
$ |
7,237,068.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14159,
L.P.
|
|
June
2008 Notes
|
|
|
22,267 |
|
|
$ |
10.00 |
(4) |
|
$ |
222,670.00 |
|
|
$ |
2,226.70 |
(5)
(6) |
|
$ |
220,443.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boxer
Capital LLC
|
|
June
2008 Notes
|
|
|
383,976 |
|
|
$ |
10.00 |
(4) |
|
$ |
3,839,760.00 |
|
|
$ |
38,397.60 |
(5)
(6) |
|
$ |
3,801,362.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rockmore
Investment Master Fund Ltd.
|
|
June
2008 Notes
|
|
|
8,390 |
|
|
$ |
10.00 |
(4) |
|
$ |
83,900.00 |
|
|
$ |
839.00 |
(5)
(6) |
|
$ |
83,061.00 |
|
Selling
Stockholder
|
|
Security
|
|
Shares
of
Common
Stock
Underlying
Security
(1)
|
|
|
Closing
Price
of
Common
Stock
on
Date
of
Sale
|
|
|
Market
Price of
Total
Number
of
Shares
Underlying
Security
on
Date
of Sale(2)
|
|
|
Conversion/Exercise
Price
of Total
Number
of
Shares
Underlying
Security
|
|
|
Total
Potential
Profit
the
Selling
Stockholders
Could
Realize
As
a Result of
the
Conversion
/Exercise
Discount
for the
Security
(3)
|
|
Tang
Capital Partners, LP
|
|
June
2008 Notes
|
|
|
829,376 |
|
|
$ |
10.00 |
(4) |
|
$ |
8,293,760.00 |
|
|
$ |
82,937.60 |
(5)
(6) |
|
$ |
8,210,822.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rodman
& Renshaw, LLC
|
|
June
2008 Warrants
|
|
|
800,000 |
|
|
$ |
10.00 |
(4) |
|
$ |
8,000,000.00 |
|
|
$ |
800,000.00 |
(7) |
|
$ |
7,200,000.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tang
Capital Partners, LP
|
|
April
2009 Notes
|
|
|
65,946,184 |
(8) |
|
$ |
1.16 |
(9) |
|
$ |
76,497,573.44 |
|
|
$ |
6,594,618.40 |
(5) |
|
$ |
69,902,955.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baker
Brothers Life Sciences, L.P.
|
|
April
2009 Notes
|
|
|
30,795,100 |
(8) |
|
$ |
1.16 |
(9) |
|
$ |
35,722,316.00 |
|
|
$ |
3,079,510.00 |
(5) |
|
$ |
32,642,806.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
667,
L.P.
|
|
April
2009 Notes
|
|
|
5,926,875 |
(8) |
|
$ |
1.16 |
(9) |
|
$ |
6,875,175.00 |
|
|
$ |
592,687.50 |
(5) |
|
$ |
6,282,487.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
667,
L.P. #2
|
|
April
2009 Notes
|
|
|
4,843,000 |
(8) |
|
$ |
1.16 |
(9) |
|
$ |
5,617,880.00 |
|
|
$ |
484,300.00 |
(5) |
|
$ |
5,133,580.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14159,
L.P.
|
|
April
2009 Notes
|
|
|
1,469,125 |
(8) |
|
$ |
1.16 |
(9) |
|
$ |
1,704,185.00 |
|
|
$ |
146,912.50 |
(5) |
|
$ |
1,557,272.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BAM
Opportunity Fund, L.P.
|
|
April
2009 Notes
|
|
|
11,876,350 |
(8) |
|
$ |
1.16 |
(9) |
|
$ |
13,776,566.00 |
|
|
$ |
1,187,635.00 |
(5) |
|
$ |
12,588,931.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boxer
Capital LLC
|
|
April
2009 Notes
|
|
|
19,319,437 |
(8) |
|
$ |
1.16 |
(9) |
|
$ |
22,410,546.92 |
|
|
$ |
1,931,943.70 |
(5) |
|
$ |
20,478,603.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cat
Trail Private Equity Fund, LLC
|
|
April
2009 Notes
|
|
|
24,562,500 |
(8) |
|
$ |
1.16 |
(9) |
|
$ |
28,492,500.00 |
|
|
$ |
2,456,250.00 |
(5) |
|
$ |
26,036,250.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arcus
Ventures Fund
|
|
April
2009 Notes
|
|
|
10,593,750 |
(8) |
|
$ |
1.16 |
(9) |
|
$ |
12,288,750.00 |
|
|
$ |
1,059,375.00 |
(5) |
|
$ |
11,229,375.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cranshire
Capital LP
|
|
April
2009 Notes
|
|
|
600,000 |
(8) |
|
$ |
1.16 |
(9) |
|
$ |
696,000.00 |
|
|
$ |
60,000.00 |
(5) |
|
$ |
636,000.00 |
|
Selling
Stockholder
|
|
Security
|
|
Shares
of
Common
Stock
Underlying
Security
(1)
|
|
|
Closing
Price
of
Common
Stock
on
Date
of
Sale
|
|
|
Market
Price of
Total
Number
of
Shares
Underlying
Security
on
Date
of Sale(2)
|
|
|
Conversion/Exercise
Price
of Total
Number
of
Shares
Underlying
Security
|
|
|
Total
Potential
Profit
the
Selling
Stockholders
Could
Realize
As
a Result of
the
Conversion
/Exercise
Discount
for the
Security
(3)
|
|
Rockmore
Investment Master Fund Ltd.
|
|
April
2009 Notes
|
|
|
792,560 |
(8) |
|
$ |
1.16 |
(9) |
|
$ |
919,369.60 |
|
|
$ |
79,256.00 |
(5) |
|
$ |
840,113.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RRC
BioFund, LP
|
|
April
2009 Notes
|
|
|
300,000 |
(8) |
|
$ |
1.16 |
(9) |
|
$ |
348,000.00 |
|
|
$ |
30,000.00 |
(5) |
|
$ |
318,000.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rodman
& Renshaw, LLC
|
|
April
2009 Notes
|
|
|
1,005,500 |
(8) |
|
$ |
1.16 |
(9) |
|
$ |
1,166,380.00 |
|
|
$ |
100,550.00 |
(5) |
|
$ |
1,065,830.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tang
Capital Partners, LP
|
|
April
2009 Warrants
|
|
|
9,250,000 |
(10) |
|
$ |
1.16 |
(9) |
|
$ |
10,730,000.00 |
|
|
$ |
4,625,000.00 |
(11) |
|
$ |
6,105,000.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
667,
L.P.
|
|
April
2009 Warrants
|
|
|
950,000 |
(10) |
|
$ |
1.16 |
(9) |
|
$ |
1,102,000.00 |
|
|
$ |
475,000.00 |
(11) |
|
$ |
627,000.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
667,
L.P. #2
|
|
April
2009 Warrants
|
|
|
775,000 |
(10) |
|
$ |
1.16 |
(9) |
|
$ |
899,000.00 |
|
|
$ |
387,500.00 |
(11) |
|
$ |
511,500.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baker
Brothers Life Sciences, L.P.
|
|
April
2009 Warrants
|
|
|
7,290,000 |
(10) |
|
$ |
1.16 |
(9) |
|
$ |
8,456,400.00 |
|
|
$ |
3,645,000.00 |
(11) |
|
$ |
4,811,400.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14159,
L.P.
|
|
April
2009 Warrants
|
|
|
235,000 |
(10) |
|
$ |
1.16 |
(9) |
|
$ |
272,600.00 |
|
|
$ |
117,500.00 |
(11) |
|
$ |
155,100.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BAM
Opportunity Fund, L.P.
|
|
April
2009 Warrants
|
|
|
4,000,000 |
(10) |
|
$ |
1.16 |
(9) |
|
$ |
4,640,000.00 |
|
|
$ |
2,000,000.00 |
(11) |
|
$ |
2,640,000.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boxer
Capital LLC
|
|
April
2009 Warrants
|
|
|
2,625,000 |
(10) |
|
$ |
1.16 |
(9) |
|
$ |
3,045,000.00 |
|
|
$ |
1,312,500.00 |
(11) |
|
$ |
1,732,500.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cat
Trail Private Equity Fund, LLC
|
|
April
2009 Warrants
|
|
|
2,250,000 |
(10) |
|
$ |
1.16 |
(9) |
|
$ |
2,610,000.00 |
|
|
$ |
1,125,000.00 |
(11) |
|
$ |
1,485,000.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arcus
Ventures Fund
|
|
April
2009 Warrants
|
|
|
562,500 |
(10) |
|
$ |
1.16 |
(9) |
|
$ |
652,500.00 |
|
|
$ |
281,250.00 |
(11) |
|
$ |
371,250.00 |
|
Selling
Stockholder
|
|
Security
|
|
Shares
of
Common
Stock
Underlying
Security
(1)
|
|
|
Closing
Price
of
Common
Stock
on
Date
of
Sale
|
|
|
Market
Price of
Total
Number
of
Shares
Underlying
Security
on
Date
of Sale(2)
|
|
|
Conversion/Exercise
Price
of Total
Number
of
Shares
Underlying
Security
|
|
|
Total
Potential
Profit
the
Selling
Stockholders
Could
Realize
As
a Result of
the
Conversion
/Exercise
Discount
for the
Security
(3)
|
|
Cranshire
Capital LP
|
|
April
2009 Warrants
|
|
|
300,000 |
(10) |
|
$ |
1.16 |
(9) |
|
$ |
348,000.00 |
|
|
$ |
150,000.00 |
(11) |
|
$ |
198,000.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rockmore
Investment Master Fund Ltd.
|
|
April
2009 Warrants
|
|
|
150,000 |
(10) |
|
$ |
1.16 |
(9) |
|
$ |
174,000.00 |
|
|
$ |
75,000.00 |
(11) |
|
$ |
99,000.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RRC
BioFund, LP
|
|
April
2009 Warrants
|
|
|
150,000 |
(10) |
|
$ |
1.16 |
(9) |
|
$ |
174,000.00 |
|
|
$ |
75,000.00 |
(11) |
|
$ |
99,000.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rodman
& Renshaw, LLC
|
|
April
2009 Warrants
|
|
|
2,991,000 |
(10) |
|
$ |
1.16 |
(9) |
|
$ |
3,469,560.00 |
|
|
$ |
1,495,500.00 |
(11) |
|
$ |
1,974,060.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
667,
L.P.
|
|
July
2009 Notes
|
|
|
52,340 |
|
|
$ |
0.38 |
(12) |
|
$ |
19,889.20 |
|
|
$ |
5,234.00 |
(5) |
|
$ |
14,655.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tang
Capital Partners, LP
|
|
July
2009 Notes
|
|
|
2,856,691 |
|
|
$ |
0.38 |
(12) |
|
$ |
1,085,542.58 |
|
|
$ |
285,669.10 |
(5) |
|
$ |
799,873.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tang
Capital Partners, LP
|
|
July
2009 Warrants
|
|
|
1,660,000 |
|
|
$ |
0.38 |
(12) |
|
$ |
630,800.00 |
|
|
$ |
1,660,000.00 |
(7) |
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
667,
L.P.
|
|
July
2009 Warrants
|
|
|
170,000 |
|
|
$ |
0.38 |
(12) |
|
$ |
64,600.00 |
|
|
$ |
170,000.00 |
(7) |
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
667,
L.P. #2
|
|
July
2009 Warrants
|
|
|
140,000 |
|
|
$ |
0.38 |
(12) |
|
$ |
53,200.00 |
|
|
$ |
140,000.00 |
(7) |
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baker
Brothers Life Sciences, L.P.
|
|
July
2009 Warrants
|
|
|
1,307,500 |
|
|
$ |
0.38 |
(12) |
|
$ |
496,850.00 |
|
|
$ |
1,307,500.00 |
(7) |
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14159,
L.P.
|
|
July
2009 Warrants
|
|
|
42,500 |
|
|
$ |
0.38 |
(12) |
|
$ |
16,150.00 |
|
|
$ |
42,500.00 |
(7) |
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BAM
Opportunity Fund, L.P.
|
|
July
2009 Warrants
|
|
|
717,500 |
|
|
$ |
0.38 |
(12) |
|
$ |
272,650.00 |
|
|
$ |
717,500.00 |
(7) |
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rodman
& Renshaw, LLC
|
|
July
2009 Warrants
|
|
|
1,800,000 |
|
|
$ |
0.38 |
(12) |
|
$ |
684,000.00 |
|
|
$ |
1,800,000.00 |
(7) |
|
$ |
0 |
|
Selling
Stockholder
|
|
Security
|
|
Shares
of
Common
Stock
Underlying
Security
(1)
|
|
|
Closing
Price
of
Common
Stock
on
Date
of
Sale
|
|
|
Market
Price of
Total
Number
of
Shares
Underlying
Security
on
Date
of Sale(2)
|
|
|
Conversion/Exercise
Price
of Total
Number
of
Shares
Underlying
Security
|
|
|
Total
Potential
Profit
the
Selling
Stockholders
Could
Realize
As
a Result of
the
Conversion
/Exercise
Discount
for the
Security
(3)
|
|
Tang
Capital Partners, LP
|
|
July
2009 Notes
|
|
|
15,409,249 |
|
|
$ |
0.40 |
(13) |
|
$ |
6,163,699.60 |
|
|
$ |
1,540,924.90 |
(5) |
|
$ |
4,622,774.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
667,
L.P.
|
|
July
2009 Notes
|
|
|
1,256,866 |
|
|
$ |
0.40 |
(13) |
|
$ |
502,746.40 |
|
|
$ |
125,686.60 |
(5) |
|
$ |
377,059.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
667,
L.P. #2
|
|
July
2009 Notes
|
|
|
1,024,348 |
|
|
$ |
0.40 |
(13) |
|
$ |
409,739.20 |
|
|
$ |
102,434.80 |
(5) |
|
$ |
307,304.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baker
Brothers Life Sciences, L.P.
|
|
July
2009 Notes
|
|
|
8,698,397 |
|
|
$ |
0.40 |
(13) |
|
$ |
3,479,358.80 |
|
|
$ |
869,839.70 |
(5) |
|
$ |
2,609,519.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14159,
L.P.
|
|
July
2009 Notes
|
|
|
309,708 |
|
|
$ |
0.40 |
(13) |
|
$ |
123,883.20 |
|
|
$ |
30,970.80 |
(5) |
|
$ |
92,912.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cat
Trail Private Equity Fund, LLC
|
|
July
2009 Notes
|
|
|
9,166,432 |
|
|
$ |
0.40 |
(13) |
|
$ |
3,666,572.80 |
|
|
$ |
916,643.20 |
(5) |
|
$ |
2,749,929.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boxer
Capital LLC
|
|
July
2009 Notes
|
|
|
4,698,685 |
|
|
$ |
0.40 |
(13) |
|
$ |
1,879,474.00 |
|
|
$ |
469,868.50 |
(5) |
|
$ |
1,409,605.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MVA
Investors LLC, II
|
|
July
2009 Notes
|
|
|
1,114,489 |
|
|
$ |
0.40 |
(13) |
|
$ |
445,795.60 |
|
|
$ |
111,448.90 |
(5) |
|
$ |
334,346.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arcus
Ventures Fund
|
|
July
2009 Notes
|
|
|
4,583,216 |
|
|
$ |
0.40 |
(13) |
|
$ |
1,833,286.40 |
|
|
$ |
458,321.60 |
(5) |
|
$ |
1,374,964.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rodman
& Renshaw, LLC
|
|
July
2009 Notes
|
|
|
415,545 |
|
|
$ |
0.40 |
(13) |
|
$ |
166,218.00 |
|
|
$ |
41,554.50 |
(5) |
|
$ |
124,663.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rockmore
Investment Master Fund Ltd.
|
|
July
2009 Notes
|
|
|
113,419 |
|
|
$ |
0.40 |
(13) |
|
$ |
45,367.60 |
|
|
$ |
11,341.90 |
(5) |
|
$ |
34,025.70 |
|
Selling
Stockholder
|
|
Security
|
|
Shares
of
Common
Stock
Underlying
Security
(1)
|
|
|
Closing
Price
of
Common
Stock
on
Date
of
Sale
|
|
|
Market
Price of
Total
Number
of
Shares
Underlying
Security
on
Date
of Sale(2)
|
|
|
Conversion/Exercise
Price
of Total
Number
of
Shares
Underlying
Security
|
|
|
Total
Potential
Profit
the
Selling
Stockholders
Could
Realize
As
a Result of
the
Conversion
/Exercise
Discount
for the
Security
(3)
|
|
Tang
Capital Partners, LP
|
|
July
2009 Warrants
|
|
|
4,171,576 |
|
|
$ |
0.40 |
(13) |
|
$ |
1,668,630.40 |
|
|
$ |
4,171,576.00 |
(7) |
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
667,
L.P.
|
|
July
2009 Warrants
|
|
|
314,217 |
|
|
$ |
0.40 |
(13) |
|
$ |
125,686.80 |
|
|
$ |
314,217.00 |
(7) |
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
667,
L.P. #2
|
|
July
2009 Warrants
|
|
|
256,087 |
|
|
$ |
0.40 |
(13) |
|
$ |
102,434.80 |
|
|
$ |
256,087.00 |
(7) |
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baker
Brothers Life Sciences, L.P.
|
|
July
2009 Warrants
|
|
|
2,407,747 |
|
|
$ |
0.40 |
(13) |
|
$ |
963,098.80 |
|
|
$ |
2,407,747.00 |
(7) |
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14159,
L.P.
|
|
July
2009 Warrants
|
|
|
77,427 |
|
|
$ |
0.40 |
(13) |
|
$ |
30,970.80 |
|
|
$ |
77,427.00 |
(7) |
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cat
Trail Private Equity Fund, LLC
|
|
July
2009 Warrants
|
|
|
2,291,608 |
|
|
$ |
0.40 |
(13) |
|
$ |
916,643.20 |
|
|
$ |
2,291,608.00 |
(7) |
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boxer
Capital LLC
|
|
July
2009 Warrants
|
|
|
1,174,671 |
|
|
$ |
0.40 |
(13) |
|
$ |
469,868.40 |
|
|
$ |
1,174,671.00 |
(7) |
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MVA
Investors LLC, II
|
|
July
2009 Warrants
|
|
|
278,622 |
|
|
$ |
0.40 |
(13) |
|
$ |
111,448.80 |
|
|
$ |
278,622.00 |
(7) |
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arcus
Ventures Fund
|
|
July
2009 Warrants
|
|
|
1,145,804 |
|
|
$ |
0.40 |
(13) |
|
$ |
458,321.60 |
|
|
$ |
1,145,804.00 |
(7) |
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rodman
& Renshaw, LLC
|
|
July
2009 Warrants
|
|
|
103,886 |
|
|
$ |
0.40 |
(13) |
|
$ |
41,554.40 |
|
|
$ |
103,886.00 |
(7) |
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rockmore
Investment Master Fund Ltd.
|
|
July
2009 Warrants
|
|
|
28,355 |
|
|
$ |
0.40 |
(13) |
|
$ |
11,342.00 |
|
|
$ |
28,355.00 |
(7) |
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tang
Capital Partners, LP
|
|
September
2009 Notes
|
|
|
6,336,147 |
|
|
$ |
0.40 |
(13) |
|
$ |
2,534,458.80 |
|
|
$ |
633,614.70 |
(5) |
|
$ |
1,900,844.10 |
|
Selling
Stockholder
|
|
Security
|
|
Shares
of
Common
Stock
Underlying
Security
(1)
|
|
|
Closing
Price
of
Common
Stock
on
Date
of
Sale
|
|
|
Market
Price of
Total
Number
of
Shares
Underlying
Security
on
Date
of Sale(2)
|
|
|
Conversion/Exercise
Price
of Total
Number
of
Shares
Underlying
Security
|
|
|
Total
Potential
Profit
the
Selling
Stockholders
Could
Realize
As
a Result of
the
Conversion
/Exercise
Discount
for the
Security
(3)
|
|
667,
L.P.
|
|
September
2009 Notes
|
|
|
782,796 |
|
|
$ |
0.40 |
(13) |
|
$ |
313,118.40 |
|
|
$ |
78,279.60 |
(5) |
|
$ |
234,838.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
667,
L.P. #2
|
|
September
2009 Notes
|
|
|
637,984 |
|
|
$ |
0.40 |
(13) |
|
$ |
255,193.60 |
|
|
$ |
63,798.40 |
(5) |
|
$ |
191,395.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baker
Brothers Life Sciences, L.P.
|
|
September
2009 Notes
|
|
|
5,998,361 |
|
|
$ |
0.40 |
(13) |
|
$ |
2,399,344.40 |
|
|
$ |
599,836.10 |
(5) |
|
$ |
1,799,508.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14159,
L.P.
|
|
September
2009 Notes
|
|
|
192,890 |
|
|
$ |
0.40 |
(13) |
|
$ |
77,156.00 |
|
|
$ |
19,289.00 |
(5) |
|
$ |
57,867.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BAM
Opportunity Fund, L.P.
|
|
September
2009 Notes
|
|
|
4,795,000 |
|
|
$ |
0.40 |
(13) |
|
$ |
1,918,000.00 |
|
|
$ |
479,500.00 |
(5) |
|
$ |
1,438,500.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boxer
Capital LLC
|
|
September
2009 Notes
|
|
|
1,203,715 |
|
|
$ |
0.40 |
(13) |
|
$ |
481,486.00 |
|
|
$ |
120,371.50 |
(5) |
|
$ |
361,114.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cranshire
Capital LP
|
|
September
2009 Notes
|
|
|
350,000 |
|
|
$ |
0.40 |
(13) |
|
$ |
140,000.00 |
|
|
$ |
35,000.00 |
(5) |
|
$ |
105,000.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rockmore
Investment Master Fund Ltd.
|
|
September
2009 Notes
|
|
|
142,431 |
|
|
$ |
0.40 |
(13) |
|
$ |
56,972.40 |
|
|
$ |
14,243.10 |
(5) |
|
$ |
42,729.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RRC
BioFund, LP
|
|
September
2009 Notes
|
|
|
175,000 |
|
|
$ |
0.40 |
(13) |
|
$ |
70,000.00 |
|
|
$ |
17,500.00 |
(5) |
|
$ |
52,500.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rodman
& Renshaw, LLC
|
|
September
2009 Notes
|
|
|
56,255 |
|
|
$ |
0.40 |
(13) |
|
$ |
22,502.00 |
|
|
$ |
5,625.50 |
(5) |
|
$ |
16,876.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MVA
Investors LLC, II
|
|
September
2009 Notes
|
|
|
329,412 |
|
|
$ |
0.40 |
(13) |
|
$ |
131,764.80 |
|
|
$ |
32,941.20 |
(5) |
|
$ |
98,823.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tang
Capital Partners, LP
|
|
September
2009 Warrants
|
|
|
1,584,037 |
|
|
$ |
0.40 |
(13) |
|
$ |
633,614.80 |
|
|
$ |
1,584,037.00 |
(7) |
|
$ |
0 |
|
Selling
Stockholder
|
|
Security
|
|
Shares
of
Common
Stock
Underlying
Security
(1)
|
|
|
Closing
Price
of
Common
Stock
on
Date
of
Sale
|
|
|
Market
Price of
Total
Number
of
Shares
Underlying
Security
on
Date
of Sale(2)
|
|
|
Conversion/Exercise
Price
of Total
Number
of
Shares
Underlying
Security
|
|
|
Total
Potential
Profit
the
Selling
Stockholders
Could
Realize
As
a Result of
the
Conversion
/Exercise
Discount
for the
Security
(3)
|
|
667,
L.P.
|
|
September
2009 Warrants
|
|
|
195,700 |
|
|
$ |
0.40 |
(13) |
|
$ |
78,280.00 |
|
|
$ |
195,700.00 |
(7) |
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
667,
L.P. #2
|
|
September
2009 Warrants
|
|
|
159,496 |
|
|
$ |
0.40 |
(13) |
|
$ |
63,798.40 |
|
|
$ |
159,496.00 |
(7) |
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baker
Brothers Life Sciences, L.P.
|
|
September
2009 Warrants
|
|
|
1,499,590 |
|
|
$ |
0.40 |
(13) |
|
$ |
599,836.00 |
|
|
$ |
1,499,590.00 |
(7) |
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14159,
L.P.
|
|
September
2009 Warrants
|
|
|
48,223 |
|
|
$ |
0.40 |
(13) |
|
$ |
19,289.20 |
|
|
$ |
48,223.00 |
(7) |
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BAM
Opportunity Fund, L.P.
|
|
September
2009 Warrants
|
|
|
1,198,750 |
|
|
$ |
0.40 |
(13) |
|
$ |
479,500.00 |
|
|
$ |
1,198,750.00 |
(7) |
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boxer
Capital LLC
|
|
September
2009 Warrants
|
|
|
300,929 |
|
|
$ |
0.40 |
(13) |
|
$ |
120,371.60 |
|
|
$ |
300,929.00 |
(7) |
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cranshire
Capital LP
|
|
September
2009 Warrants
|
|
|
87,500 |
|
|
$ |
0.40 |
(13) |
|
$ |
35,000.00 |
|
|
$ |
87,500.00 |
(7) |
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rockmore
Investment Master Fund Ltd.
|
|
September
2009 Warrants
|
|
|
35,608 |
|
|
$ |
0.40 |
(13) |
|
$ |
14,243.20 |
|
|
$ |
35,608.00 |
(7) |
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RRC
BioFund, LP
|
|
September
2009 Warrants
|
|
|
3,750 |
|
|
$ |
0.40 |
(13) |
|
$ |
17,500.00 |
|
|
$ |
43,750.00 |
(7) |
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rodman
& Renshaw, LLC
|
|
September
2009 Warrants
|
|
|
1,814,064 |
|
|
$ |
0.40 |
(13) |
|
$ |
725,625.60 |
|
|
$ |
1,814,064.00 |
(7) |
|
$ |
0 |
|
Selling
Stockholder
|
|
Security
|
|
Shares
of
Common
Stock
Underlying
Security
(1)
|
|
|
Closing
Price
of
Common
Stock
on
Date
of
Sale
|
|
|
Market
Price of
Total
Number
of
Shares
Underlying
Security
on
Date
of Sale(2)
|
|
|
Conversion/Exercise
Price
of Total
Number
of
Shares
Underlying
Security
|
|
|
Total
Potential
Profit
the
Selling
Stockholders
Could
Realize
As
a Result of
the
Conversion
/Exercise
Discount
for the
Security
(3)
|
|
MVA
Investors LLC, II
|
|
September
2009 Warrants
|
|
|
82,353 |
|
|
$ |
0.40 |
(13) |
|
$ |
32,941.20 |
|
|
$ |
82,353.00 |
(7) |
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
259,484,365.84 |
|
(1) Assumes
the full conversion/exercise of the convertible notes and warrants set forth in
this table. This total does not reflect the beneficial ownership limitations
pursuant to the terms of the overlying securities.
(2) Calculated
by multiplying column #3 by column #4.
(3) Calculated
by subtracting column #6 from column #5, to the extent the result is in excess
of $0. Please note that actual profits to the selling stockholders will vary
because some of the overlying securities represented in this table have already
been sold, and actual profits to the selling stockholders for all securities
currently held will depend upon the market price of our common stock at the time
of sale by the selling stockholders, which could be more or less than the
closing price on the date the overlying securities were sold to the selling
stockholders.
(4) Represents
the closing price of the Company’s common stock on June 9, 2008.
(5) Calculated
by multiplying column #3 by the conversion price of $0.10 per
share.
(6) The
conversion price upon issuance of the June 2008 Notes was originally $0.50 per
share but was subsequently adjusted to $0.10 per share as per the terms of the
June 2008 Notes.
(7) Calculated
by multiplying column #3 by the exercise price of $1.00 per share.
(8) Includes
the options/rights to purchase additional April 2009 Notes pursuant to the
securities purchase agreement and the amendment agreement, both dated April 2,
2009.
(9) Represents
the closing price of the Company’s common stock on April 2, 2009.
(10) Includes
additional April 2009 Warrants that may be issued in connection with the
options/rights described in footnote (8).
(11) Calculated
by multiplying column #3 by the exercise price of $0.50 per share.
(12) Represents
the closing price of the Company’s common stock on July 7, 2009.
(13) Represents
the closing price of the Company’s common stock on September 4,
2009.
Comparison of Issuer
Proceeds to Potential Selling Stockholder Profit
The
following table provides a comparison of the net proceeds received by the
Company in connection with the sale of the July 2009 Notes, July 2009 Warrants
and September 2009 Notes registered for resale on this registration statement,
to the potential profit that may be realized by the selling stockholders upon
the sale of all convertible securities held by such selling
stockholders.
Selling
Stockholder
|
|
Total Gross
Proceeds
Payable to
Company (1)
|
|
|
Total
Maximum
Payments by
Company (2)
|
|
|
Net Proceeds to
Company (3)
|
|
|
Combined Total Potential Profit to be
Realized by the Selling Stockholders as
Upon the Sale of the July 2009 Notes,
July 2009 Warrants and September
2009 Notes Registered For Resale on this
Registration Statement and Any Other
Convertible Securities Held by the
Selling Stockholders (4) (5)
|
|
Tang
Capital Partners, LP
|
|
$ |
506,036.40 |
|
|
$ |
91,086.55 |
|
|
$ |
414,949.85 |
|
|
$ |
93,022,545.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boxer
Capital LLC
|
|
$ |
188,000.00 |
|
|
$ |
33,840.00 |
|
|
$ |
154,160.00 |
|
|
$ |
28,328,385.62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cat
Trail Private Equity Fund, LLC
|
|
$ |
162,000.00 |
|
|
$ |
29,160.00 |
|
|
$ |
132,840.00 |
|
|
$ |
30,740,979.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arcus
Ventures Fund
|
|
$ |
81,000.00 |
|
|
$ |
14,580.00 |
|
|
$ |
66,420.00 |
|
|
$ |
13,210,489.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cranshire
Capital LP
|
|
$ |
22,000.00 |
|
|
$ |
3,960.00 |
|
|
$ |
18,040.00 |
|
|
$ |
1,002,800.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rockmore
Investment Master Fund Ltd.
|
|
$ |
11,000.00 |
|
|
$ |
1,980.00 |
|
|
$ |
9,020.00 |
|
|
$ |
1,130,829.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RRC
BioFund, LP
|
|
$ |
11,000.00 |
|
|
$ |
1,980.00 |
|
|
$ |
9,020.00 |
|
|
$ |
501,400.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rodman
& Renshaw, LLC
|
|
$ |
11,000.00 |
|
|
$ |
129,432.88 |
|
|
$ |
0.00 |
|
|
$ |
10,413,330.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
667,
L.P.
|
|
$ |
31,383.00 |
|
|
$ |
5,648.94 |
|
|
$ |
25,734.06 |
|
|
$ |
8,620,222.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
667,
L.P. #2
|
|
$ |
38,109.00 |
|
|
$ |
6,859.62 |
|
|
$ |
31,249.38 |
|
|
$ |
7,012,237.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baker
Brothers Life Sciences, L.P.
|
|
$ |
386,358.70 |
|
|
$ |
69,544.57 |
|
|
$ |
316,814.13 |
|
|
$ |
50,230,067.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14159,
L.P.
|
|
$ |
9,527.00 |
|
|
$ |
1,714.86 |
|
|
$ |
7,812.14 |
|
|
$ |
2,111,223.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BAM
Opportunity Fund, LP
|
|
$ |
153,250.00 |
|
|
$ |
24,520.00 |
|
|
$ |
128,730.00 |
|
|
$ |
17,127,181.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MVA Investors LLC, II
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
433,170.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
$ |
1,314,789.56 |
|
|
$ |
264,192,713.19 |
|
(1) Total
gross proceeds payable to us. If the selling stockholders exercise
the July 2009 Warrants on a cash basis, then the additional gross proceeds
payable to us will be $1,215,000. Information regarding the gross
proceeds payable to us by each selling stockholder is set forth in the footnotes
of the table provided in “Payments to the Selling Stockholders and Affiliates”
above.
(2) Information
regarding the maximum payments by us to each selling stockholder and its
affiliates are set forth in the footnotes of the table provided in “Payments to
the Selling Stockholders and Affiliates” above.
(3) Total
net proceeds to us calculated by subtracting column #3 from column #2, to the
extent the result is in excess of $0. Please note that this amount is
the minimum total net proceeds to the Company in connection with the sale of the
July 2009 Notes, July 2009 Warrants and September 2009 Notes; the actual net
proceeds to the Company will depend upon the actual conversion/exercise of the
overlying securities as well as the amount of any liquidated damages payable by
the Company to the selling stockholders. If the selling stockholders
exercise the July 2009 Warrants on a cash basis, then the total net proceeds
payable to us will be $2,529,789.56. The expenses set forth in column
#3 above will not change in the event of the cash exercise of the July 2009
Warrants.
(4) Calculated
by adding the potential profits to be realized by the selling stockholders upon
the sale of the July 2009 Notes, July 2009 Warrants and September 2009 Notes
registered for resale on this registration statement to the potential profits to
be realized by the selling stockholders upon the sale of all other convertible
securities held by such selling stockholders, including the June 2008 Notes,
June 2008 Warrants, April 2009 Notes, April 2009 Warrants, additional July 2009
Notes, additional July 2009 Warrants, additional September 2009 Notes and
September 2009 Warrants, the sale of all such overlying securities resulted in
gross proceeds to the Company of approximately $39,000,000, in the
aggregate. Please note that actual profits to the selling
stockholders will depend upon the market price of our common stock at the time
of sale by the selling stockholders, which could be more or less than the
closing price on the date the overlying securities were sold to the selling
stockholders, especially since the overlying securities were not registered at
the time of sale, and therefore, were restricted securities. For
example, using the closing price of our common stock on December 16, 2009, of
$0.08 per share, the selling stockholders would not recognize any combined
potential profit upon the sale of the July 2009 Notes, July 2009 Warrants and
September 2009 Notes registered for resale on this registration statement and
any other convertible securities held by the selling stockholders.
(5) The
combined total potential profit for each selling stockholder is set forth above
under “Potential Profits on Conversion” and “Total Potential Selling Stockholder
Profit from Other Securities”.
Based on
the information provided in the foregoing table, the total amount of possible
payments by the Company in connection with the sale of the July 2009 Notes, July
2009 Warrants and September 2009 Notes registered for resale on this
registration statement and the total potential profit to be realized by the
selling stockholders upon the sale of the July 2009 Notes, July 2009 Warrants
and September 2009 Notes registered for resale on this registration statement is
equal to approximately 202% of the net proceeds to the Company in connection
with the sale of the July 2009 Notes, July 2009 Warrants (assuming exercise on a
cash basis) and September 2009 Notes registered for resale on this registration
statement, or approximately 101% each year averaged over the two-year term of
the July 2009 Notes, July 2009 Warrants and September 2009 Notes.
Please
note that the foregoing table compares the net proceeds from the Company from
the sale of the July 2009 Notes, July 2009 Warrants and September 2009 Notes
registered for resale on this registration statement to the total potential
profit that may be realized by the selling stockholders upon the sale of all
convertible securities held by such selling stockholders. The Company
has net proceeds of $1,314,789.56 (assuming the cashless exercise of all of the
July 2009 Warrants) or $2,529,789.56 (assuming the exercise of the July 2009
Warrants on a cash basis) in connection with the sale of the July 2009 Notes,
July 2009 Warrants and September 2009 Notes registered for resale on this
registration statement compared to a total potential profit by the selling
stockholders upon the sale of the July 2009 Notes, July 2009 Warrants and
September 2009 Notes registered for resale on this registration statement of
$4,708,347.35 (comparing the closing price of our common stock on the date the
overlying securities were sold to the selling stockholders to the
conversion/exercise price of the overlying securities). Actual
profits to the selling stockholders will depend upon the market price of our
common stock at the time of sale by the selling stockholders, which could be
more or less than the closing price on the date the overlying securities were
sold to the selling stockholders.
Prior Transactions between
the Company and the Selling Stockholders
The
following table summarizes all prior securities transactions between the Company
and the selling stockholders.
Selling
Stockholder
|
|
Date of the
Transaction
|
|
Total
Number of
Shares
Outstanding
Prior to the
Transaction
|
|
|
Total
Number of
Shares held
by Non-
Affiliates (1)
of the
Company
Prior to the
Transaction
|
|
|
Total
Number of
Shares
Issued or
Issuable to
the Selling
Stockholders
in the
Transaction
(2)
|
|
|
Shares as
a
Percentage
of Non-
Affiliates
(1)
|
|
|
Market
Price Per
Share
Immediately
Prior to the
Transaction
|
|
|
Current
Market
Price Per
Share (3)
|
|
Tang
Capital Partners,
LP
|
|
June
9, 2008
|
|
|
734,811 |
|
|
|
732,262 |
|
|
|
27,500,000 |
(4) |
|
|
2.66 |
% |
|
$ |
10.00 |
|
|
$ |
0.08 |
|
Boxer
Capital LLC
|
|
June
9, 2008
|
|
|
734,811 |
|
|
|
732,262 |
|
|
|
17,500,000 |
|
|
|
4.18 |
% |
|
$ |
10.00 |
|
|
$ |
0.08 |
|
Cat
Trail Private Equity Fund, LLC
|
|
June
9, 2008
|
|
|
734,811 |
|
|
|
732,262 |
|
|
|
15,000,000 |
|
|
|
4.88 |
% |
|
$ |
10.00 |
|
|
$ |
0.08 |
|
Arcus
Ventures Fund
|
|
June
9, 2008
|
|
|
734,811 |
|
|
|
732,262 |
|
|
|
7,500,000 |
|
|
|
9.76 |
% |
|
$ |
10.00 |
|
|
$ |
0.08 |
|
Cranshire
Capital LP
|
|
June
9, 2008
|
|
|
734,811 |
|
|
|
732,262 |
|
|
|
2,500,000 |
|
|
|
29.29 |
% |
|
$ |
10.00 |
|
|
$ |
0.08 |
|
Rockmore
Investment Master Fund Ltd.
|
|
June
9, 2008
|
|
|
734,811 |
|
|
|
732,262 |
|
|
|
1,000,000 |
|
|
|
73.23 |
% |
|
$ |
10.00 |
|
|
$ |
0.08 |
|
RRC
BioFund, LP
|
|
June
9, 2008
|
|
|
734,811 |
|
|
|
732,262 |
|
|
|
1,000,000 |
|
|
|
73.23 |
% |
|
$ |
10.00 |
|
|
$ |
0.08 |
|
Rodman
& Renshaw, LLC
|
|
June
9, 2008
|
|
|
734,811 |
|
|
|
732,262 |
|
|
|
1,000,000 |
(5) |
|
|
73.23 |
% |
|
$ |
10.00 |
|
|
$ |
0.08 |
|
667,
L.P.
|
|
June
9, 2008
|
|
|
734,811 |
|
|
|
732,262 |
|
|
|
2,050,000 |
|
|
|
35.72 |
% |
|
$ |
10.00 |
|
|
$ |
0.08 |
|
667,
L.P. #2
|
|
June
9, 2008
|
|
|
734,811 |
|
|
|
732,262 |
|
|
|
1,680,000 |
|
|
|
43.59 |
% |
|
$ |
10.00 |
|
|
$ |
0.08 |
|
Baker
Brothers Life Sciences, L.P.
|
|
June
9, 2008
|
|
|
734,811 |
|
|
|
732,262 |
|
|
|
15,760,000 |
|
|
|
4.65 |
% |
|
$ |
10.00 |
|
|
$ |
0.08 |
|
14159, L.P.
|
|
June 9, 2008
|
|
|
734,811 |
|
|
|
732,262 |
|
|
|
510,000 |
|
|
|
143.58 |
% |
|
$ |
10.00 |
|
|
$ |
0.08 |
|
Total
|
|
|
|
|
734,811 |
|
|
|
732,262 |
|
|
|
93,800,000 |
(6) |
|
|
0.78 |
% |
|
$ |
10.00 |
|
|
$ |
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.08 |
|
Tang
Capital Partners, LP
|
|
April
2, 2009
|
|
|
20,282,825 |
|
|
|
20,268,780 |
|
|
|
23,125,000 |
(7) |
|
|
87.65 |
% |
|
$ |
1.15 |
|
|
$ |
0.08 |
|
Baker
Brothers Life Sciences, L.P.
|
|
April
2, 2009
|
|
|
20,282,825 |
|
|
|
20,268,780 |
|
|
|
18,225,000 |
(8) |
|
|
111.21 |
% |
|
$ |
1.15 |
|
|
$ |
0.08 |
|
667,
L.P.
|
|
April
2, 2009
|
|
|
20,282,825 |
|
|
|
20,268,780 |
|
|
|
2,375,000 |
(9) |
|
|
853.42 |
% |
|
$ |
1.15 |
|
|
$ |
0.08 |
|
667,
L.P. #2
|
|
April
2, 2009
|
|
|
20,282,825 |
|
|
|
20,268,780 |
|
|
|
1,937,500 |
(10) |
|
|
1046.13 |
% |
|
$ |
1.15 |
|
|
$ |
0.08 |
|
14159,
L.P.
|
|
April
2, 2009
|
|
|
20,282,825 |
|
|
|
20,268,780 |
|
|
|
587,500 |
(11) |
|
|
3450.00 |
% |
|
$ |
1.15 |
|
|
$ |
0.08 |
|
BAM
Opportunity Fund, L.P.
|
|
April
2, 2009
|
|
|
20,282,825 |
|
|
|
20,268,780 |
|
|
|
10,000,000 |
(12) |
|
|
202.69 |
% |
|
$ |
1.15 |
|
|
$ |
0.08 |
|
Boxer
Capital LLC
|
|
April
2, 2009
|
|
|
20,282,825 |
|
|
|
20,268,780 |
|
|
|
6,562,500 |
(13) |
|
|
308.86 |
% |
|
$ |
1.15 |
|
|
$ |
0.08 |
|
Cat
Trail Private Equity Fund, LLC
|
|
April
2, 2009
|
|
|
20,282,825 |
|
|
|
20,268,780 |
|
|
|
5,625,000 |
(14) |
|
|
360.33 |
% |
|
$ |
1.15 |
|
|
$ |
0.08 |
|
Arcus
Ventures Fund
|
|
April
2, 2009
|
|
|
20,282,825 |
|
|
|
20,268,780 |
|
|
|
2,812,500 |
(15) |
|
|
720.67 |
% |
|
$ |
1.15 |
|
|
$ |
0.08 |
|
Cranshire
Capital LP
|
|
April
2, 2009
|
|
|
20,282,825 |
|
|
|
20,268,780 |
|
|
|
750,000 |
(16) |
|
|
2702.50 |
% |
|
$ |
1.15 |
|
|
$ |
0.08 |
|
Rockmore
Master Investment Fund Ltd.
|
|
April
2, 2009
|
|
|
20,282,825 |
|
|
|
20,268,780 |
|
|
|
375,000 |
(17) |
|
|
5405.01 |
% |
|
$ |
1.15 |
|
|
$ |
0.08 |
|
RRC
BioFund, LP
|
|
April
2, 2009
|
|
|
20,282,825 |
|
|
|
20,268,780 |
|
|
|
375,000 |
(18) |
|
|
5405.01 |
% |
|
$ |
1.15 |
|
|
$ |
0.08 |
|
Rodman & Renshaw, LLC
|
|
April 2, 2009
|
|
|
20,282,825 |
|
|
|
20,268,780 |
|
|
|
375,000 |
(19) |
|
|
5405.01 |
% |
|
$ |
1.15 |
|
|
$ |
0.08 |
|
Total
|
|
|
|
|
20,282,825 |
|
|
|
20,268,780 |
|
|
|
73,125,000 |
(20) |
|
|
27.72 |
% |
|
$ |
1.15 |
|
|
$ |
0.08 |
|
(1) This
calculation excludes any shares held by the selling stockholders in the
denominator.
(2) The
total does not reflect the beneficial ownership limitations pursuant to the
terms of the June 2008 Notes and June 2008 Warrants. Please note that
not all of the selling stockholders participated in the June 2008 financing, but
the number of shares presented has been limited to the participation of selling
stockholders in that transaction. Specifically, MVA Investors II, LLC
and BAM Opportunity Fund, L.P. did not participate in the June 2008
financing. This total does not reflect the beneficial ownership
limitations pursuant to the terms of the April 2009 Notes and April 2009
Warrants. Please note that not all of the selling stockholders
participated in the April 2009 financing, but the number of shares presented has
been limited to the participation of selling stockholders in that
transaction. Specifically, MVA Investors II, LLC did not participate
in the April 2009 financing.
(3) Market
price per share of our common stock on December 16, 2009.
(4) Includes
500,000 shares to the Trustees of the Tang Family Trust and 50,000 shares to Noa
Young Tang, both affiliates of Tang Capital Partners, LP.
(5) Includes
a June 2008 Warrant issued to Rodman & Renshaw, LLC in connection with its
services as placement agent to purchase 800,000 shares of common stock that are
exercisable until December 10, 2013.
(6) Consists
of June 2008 Notes convertible into 93,000,000 shares of common stock allocated
to the selling stockholders.
(7) Includes
an April 2009 Warrant convertible into 4,625,000 shares of common
stock.
(8) Includes
an April 2009 Warrant convertible into 3,645,000 shares of common
stock.
(9) Includes
an April 2009 Warrant convertible into 475,000 shares of common
stock.
(10) Includes
an April 2009 Warrant convertible into 387,500 shares of common
stock.
(11) Includes
an April 2009 Warrant convertible into 117,500 shares of common
stock.
(12) Includes
an April 2009 Warrant convertible into 2,000,000 shares of common
stock.
(13) Includes
an April 2009 Warrant convertible into 1,312,500 shares of common
stock.
(14) Includes
an April 2009 Warrant convertible into 1,125,000 shares of common
stock.
(15) Includes
an April 2009 Warrant convertible into 562,500 shares of common
stock.
(16) Includes
an April 2009 Warrant convertible into 150,000 shares of common
stock.
(17) Includes
an April 2009 Warrant convertible into 75,000 shares of common
stock.
(18) Includes
an April 2009 Warrant convertible into 75,000 shares of common
stock.
(19) Includes
an April 2009 Warrant convertible into 75,000 shares of common
stock.
(20) Consists
of April 2009 Notes convertible into 58,500,000 shares of common stock and April
2009 Warrants to purchase 14,625,000 shares of common stock that are exercisable
for a three-year period commencing upon the six month anniversary of the
issuance date. Excludes the options to purchase additional April 2009
Notes pursuant to the securities purchase agreement dated April 2,
2009.
Comparison of Registered
Shares to Outstanding Shares
The
following table illustrates the number of shares of the Company’s common stock
registered for resale by the selling stockholders in this registration statement
and in prior registration statements.
|
Total Number of
Shares Outstanding
Prior to the July
2009 Financing
held by Non-
Affiliates
|
|
|
Number of Shares
Registered for
Resale by the
Selling
Stockholders in
Prior Registration
Statements
|
|
|
Number of Shares
Registered for
Resale by the
Selling
Stockholders that
Continue to be
Held by the Selling
Stockholder
|
|
|
Number of Shares
that have been Sold
in Registered
Resale
Transactions by the
Selling
Stockholders
|
|
|
Number of Shares
Registered for
Resale in this
Registration
Statement
|
|
|
|
94,568,797 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
54,713,330 |
|
DESCRIPTION
OF BUSINESS
Overview
We are a
biopharmaceutical company engaged in pharmaceutical (drug) research and
development. We are dedicated to the identification, development and
commercialization of novel drugs for the treatment of cancer and related
diseases. Our research portfolio consists of two major programs: “DNA/RNA
Medicines” (which includes our lead oncology drug, Genasense®); and “Small
Molecules” (which includes our marketed product, Ganite®, and the
investigational compounds tesetaxel and G4544).
The
DNA/RNA Medicines program includes drugs that are based on using modifications
of either DNA or RNA as drugs that can be used to treat disease. These
technologies include antisense, decoys, and small interfering or micro RNAs. Our
lead drug from this program is an investigational antisense compound known as
Genasense® (oblimersen sodium injection). Genasense® is designed to disrupt a
specific mRNA, which then block the production of a protein known as Bcl-2.
Current science suggests that Bcl-2 is a fundamental (although not sole) cause
of the inherent resistance of cancer cells to anticancer treatments, such as
chemotherapy, radiation, and monoclonal antibodies. While Genasense® has
displayed some anticancer activity when used alone, we are developing the drug
primarily as a means of amplifying the cytotoxic effects of other anticancer
treatments.
Genasense®
Most
recently, our principal goal has been to secure regulatory approval for the
marketing of Genasense®. Genasense® has been studied in combination with a wide
variety of anticancer drugs in a number of different cancer indications. We have
reported results from randomized trials of Genasense® in a number of diseases.
Under our own sponsorship or in collaboration with others, we are currently
conducting additional clinical trials. We are especially interested in the
development, regulatory approval, and commercialization of Genasense® in at
least three diseases: melanoma; chronic lymphocytic leukemia (CLL); and
non-Hodgkin’s lymphoma (NHL).
Genasense®
has been submitted for regulatory approval in the U.S. on two occasions and to
the European Union (EU) once. These applications proposed the use of Genasense®
plus chemotherapy for patients with advanced melanoma (U.S. and EU) and relapsed
or refractory chronic lymphocytic leukemia (CLL) (U.S.-only). None of these
applications resulted in regulatory approval for marketing. Nonetheless, we
believe that Genasense® can ultimately be approved and commercialized and we
have undertaken a number of initiatives in this regard that are described
below.
Melanoma
Our major
current initiative is a randomized controlled trial that tests whether the
addition of Genasense to standard chemotherapy can improve outcomes for patients
with advanced melanoma. In August 2007 we initiated a new Phase 3 trial of
Genasense® plus chemotherapy in advanced melanoma. This trial, known as AGENDA,
is a randomized, double-blind, placebo-controlled study in which patients are
randomly assigned to receive Genasense® plus dacarbazine or dacarbazine alone.
The study uses LDH as a biomarker to identify patients who are most likely to
respond to Genasense®, based on data obtained from our preceding trial in
melanoma. The co-primary endpoints of AGENDA are progression-free survival (PFS)
and overall survival.
The
design of AGENDA was based on data obtained from a similarly designed Phase 3
trial that was published in 2006. Results from this antecedent study showed that
treatment with Genasense® plus dacarbazine compared with dacarbazine alone was
associated with a statistically significant increase in overall response,
complete response, durable response, and progression-free survival (PFS).
However, the primary endpoint of overall survival approached but did not quite
reach statistical significance (P=0.077) in the entire “intent-to-treat”
population. Our further analysis of this trial showed that there was a
significant treatment interaction effect related to levels of a blood enzyme
known as LDH. When this effect was analyzed by treatment arm, survival was shown
to be significantly superior for patients with a non-elevated LDH who received
Genasense® (P=0.018; n=508). Moreover, this benefit was particularly noteworthy
for patients whose baseline LDH did not exceed 80% of the upper limit of normal
for this lab value. LDH had also been previously described by others as the
single most important prognostic factor in advanced melanoma. Thus, the AGENDA
trial seeks to confirm the observations that were previously observed in the
antecedent trial in a biomarker-defined patient population.
In March
2009, we completed accrual of 314 patients into AGENDA. In October 2009, we
announced that AGENDA did not show a statistically significant benefit for its
co-primary endpoint of progression-free survival. Secondary endpoints
of overall response rate and disease control rate (which includes complete and
partial responses, plus stable disease greater than 3 months duration) also did
not show a statistically significant benefit. According to the prespecified
analysis plan, the statistical significance of durable response, (a secondary
endpoint that measures the proportion of patients who achieved a complete or
partial response that lasts greater than 6 months), is too early to evaluate.
However, the observed differences in progression-free survival, overall
response, disease control and durable response all numerically favored the group
that received Genasense®.
Overall
survival, the other co-primary endpoint in AGENDA, is too early to evaluate, as
prospectively specified. An analysis for futility, which was defined
as greater than 50% conditional power to observe a statistically significant
benefit of Genasense® (P < 0.05) under the prospectively specified hazard
ratio of 0.69, was conducted for the co-primary endpoint of overall
survival. AGENDA passed this futility analysis, and an Independent
Data Monitoring Committee has recommended that the trial continue to completion
for the determination of the overall survival endpoint. The safety profile of
Genasense® in AGENDA was consistent with prior studies. Pending adequacy of
financial resources and other contingencies noted herein, Genta currently
intends to continue the AGENDA trial in order to determine whether the addition
of Genasense to dacarbazine is associated with a statistically significant
increase in overall survival. If that association is demonstrated, we
currently expect that Genta would submit regulatory applications for the
marketing approval of Genasense® on a worldwide basis.
We have
been conducting other trials of Genasense ® in melanoma including a Phase 2
trial of Genasense® plus chemotherapy consisting of Abraxane® (paclitaxel
protein-bound particles for injectable suspension) (albumin bound) plus
temozolomide (Temodar®). We have expected to examine whether different dosing
regimens would improve the dosing convenience. We are currently assessing
whether to continue such trials.
CLL
As noted
above, our NDA for the use of Genasense® plus chemotherapy in patients with
relapsed or refractory CLL was not approved. We conducted a randomized Phase 3
trial in 241 patients with relapsed or refractory CLL who were treated with
fludarabine and cyclophosphamide (Flu/Cy) with or without Genasense®. The trial
achieved its primary endpoint: a statistically significant increase (17% vs. 7%;
P=0.025) in the proportion of patients who achieved a complete response (CR),
defined as a complete or nodular partial response. Patients who achieved this
level of response also experienced disappearance of predefined disease symptoms.
A key secondary endpoint, duration of CR, was also significantly longer for
patients treated with Genasense® (median exceeding 36+ months in the Genasense®
group, versus 22 months in the chemotherapy-only group).
Several
secondary endpoints were not improved by the addition of Genasense®. The
percentage of patients who experienced serious adverse events was increased in
the Genasense® arm; however, the percentages of patients who discontinued
treatment due to adverse events were equal in the treatment arms. The incidence
of certain serious adverse reactions, including but not limited to nausea, fever
and catheter-related complications, was increased in patients treated with
Genasense®.
We
received a “non-approvable” notice from the FDA in December 2006 for our NDA
that proposed the use of Genasense® in combination with Flu/Cy for the treatment
of patients with relapsed or refractory CLL who had previously received
fludarabine. We appealed this decision with FDA’s Center for Drug Evaluation and
Research (CDER) using the agency’s Formal Dispute Resolution process. In June
2008, we announced results from 5 years of follow-up on patients who had been
accrued to our completed Phase 3 trial. These data showed that patients treated
with Genasense® plus chemotherapy who achieved either a complete response (CR)
or a partial response (PR) also achieved a statistically significant increase in
survival with chemotherapy alone (median = 56 months vs. 38 months,
respectively). After 5 years of follow-up, 22 of 49 (45%) responders in the
Genasense® group were alive compared with 13 of 54 (24%) responders in the
chemotherapy-only group (hazard ratio = 0.6; P = 0.038). Moreover, with 5 years
of follow-up, 12 of 20 patients (60%) in the Genasense® group who achieved CR
were alive, 5 of these patients remained in continuous CR without relapse, and 2
additional patients had relapsed but had not required additional therapy. By
contrast, only 3 of 8 CR patients in the chemotherapy-only group were alive, all
3 had relapsed, and all 3 had required additional anti-leukemic
treatment.
In March
2009, CDER decided that available data were still insufficient to support
approval of Genasense® in CLL, and the Agency recommended conducting another
clinical trial. We have made no decision whether to conduct this study or
whether to pursue this application without further study for regulatory approval
in other territories..
As with
melanoma, we believe the clinical activity in CLL, as well as in non-Hodgkin’s
lymphoma and other types of cancer, should be explored with additional clinical
research. We are currently reassessing whether to proceed with such
studies.
NHL
Several
trials have shown definite evidence of clinical activity for Genasense® in
patients with non-Hodgkin’s lymphoma (NHL). We would like to conduct additional
clinical studies in patients with NHL to test whether Genasense® can be approved
in this indication. Previously, we reported that randomized trials of Genasense®
in patients with myeloma, acute myeloid leukemia, (AML), hormone-refractory
prostate cancer (HRPC), small cell lung cancer and non small cell lung cancer
were not sufficiently positive to warrant further investigation on the
dose-schedules that were examined or with the chemotherapy that was employed in
these trials. Data from these trials have been presented at various scientific
meetings. However, we believe that alternate dosing schedules, in particular the
use of brief high-dose IV infusions, provide an opportunity to re-examine the
drug’s activity in some of these indications.
Tesetaxel
In March
2008, we obtained an exclusive worldwide license for tesetaxel from Daiichi
Sankyo Company Ltd. Tesetaxel is a novel taxane compound that is taken by mouth.
Tesetaxel has completed Phase 2 trials in a number of cancer types, and the drug
has shown definite evidence of antitumor activity in gastric cancer and breast
cancer. Tesetaxel also appears to be associated with a lower incidence of
peripheral nerve damage, a common side effect of taxanes that limits the maximum
amount of these drugs that can be given to patients. At the time we obtained the
license, tesetaxel was on “clinical hold” by FDA due to the occurrence of
several fatalities in the setting of severe neutropenia. In the second quarter
of 2008, we filed a response to the FDA requesting a lift of the clinical hold,
which was granted in June 2008. In January 2009, we announced initiation of a
new clinical trial with tesetaxel to examine the clinical pharmacology of the
drug over a narrow dosing range around the established Phase 2 dose. We expect
accrual to the initial phase of this study to be complete in the Fourth Quarter
2009.
We have
also submitted applications to FDA for designation of tesetaxel as an Orphan
Drug for treatment of patients with advanced gastric cancer and for patients
with advanced melanoma. Both of these designations were granted. Our current
priorities for clinical testing of tesetaxel includes the evaluation of safety
and efficacy in patients with advanced gastric cancer, advanced melanoma and
prostate cancer. Other disease priorities for clinical research include cancers
of the bladder and breast, among other disorders. Maintenance of the license
from Daiichi Sankyo requires certain milestone payments. If such payments are
not made, Daiichi Sankyo may elect to terminate the license.
Oral
Gallium-Containing Compounds (G4544)
Our third
pipeline product is G4544, which is a novel oral formulation of a
gallium-containing compound that we developed in collaboration with Emisphere
Technologies, Inc. We completed a single-dose Phase 1 study of an initial
formulation of this new drug known as “G4544(a)”, the results of which were
presented at a scientific meeting in the second quarter of 2008. We are
currently contemplating a second study using a modified formulation, known as
“G4544(b)”, in order to test whether this formulation will prove more clinically
acceptable.
If we are
able to identify a clinically and commercially acceptable formulation of G4544
or another oral gallium-containing compound, we currently intend to pursue a
505(b)(2) strategy to establish bioequivalence to our marketed product, Ganite®,
for its initial regulatory approval of G4544. We believe a drug of this type may
also be broadly useful for treatment of other diseases associated with
accelerated bone loss, such as bone metastases, Paget’s disease and
osteoporosis. In addition, new uses of gallium-containing compounds have been
identified for treatment of certain infectious diseases. While we have no
current plans to begin clinical development in the area of infectious disease,
we intend to support research conducted by certain academic institutions by
providing clinical supplies of our gallium-containing drugs.
Ganite®
We are
currently marketing Ganite® in the U.S., which is an intravenous formulation of
gallium, for treatment of cancer-related hypercalcemia that is resistant to
hydration. We have announced our intention to seek a buyer for Ganite®, but we
have not yet found an acceptable transaction.
Summary
of Business and Research and Development Programs
Our goal
is to establish Genta as a biopharmaceutical leader and preferred partner in the
oncology market and eventually, as direct marketers of our products in the
United States. Our key strategies in this regard are:
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Build on our core competitive
strength of oncology development expertise to establish a leadership
position in providing biopharmaceutical products for the treatment of
cancer.
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Expand our pipeline of products
in two therapeutic categories, DNA/RNA Medicines and Small Molecules,
through internal development, licensing and
acquisitions.
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Establish our lead antisense
compound, Genasense®, as the preferred chemosensitizing drug for use in
combination with other cancer therapies in a variety of human cancer
types; and
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Establish a sales and marketing
presence in the U.S. oncology
market.
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Research
and Development Programs
DNA/RNA
Medicines
A number
of technologies have been developed using modifications of DNA or RNA. These
agents have been used as scientific tools for laboratory use to identify gene
function, as diagnostic probes to evaluate diseases, and — more recently — as
potential drugs to treat human diseases. Collectively, these technologies
include methods known as antisense, RNA interference, micro-RNA, decoys and gene
therapy. Founded in 1988, Genta was one of the first companies established to
exploit these new technologies for use as potential drugs and we remain broadly
committed to research and development of these compounds with a specific focus
on cancer medicine, commonly known as oncology. Our most advanced drugs in our
DNA/RNA Medicines program involve the use of antisense technology.
Antisense
Technology
Most
cellular functions, including whether cells live or die, are carried out by
proteins. The genetic code for a protein is contained in DNA, which is made up
of bases known as nucleotides that are arranged in a specific sequence. The
specificity of the sequence accounts for the production of a specific protein.
In order for DNA to produce a protein, an intermediate step is required. In this
step, DNA is transcribed into messenger RNA, or mRNA. The sequence of mRNA that
encodes a protein is oriented in only one direction, which is known as the
“sense” orientation.
Antisense
drugs are short sequences of chemically modified DNA bases that are called
oligonucleotides, or oligos. The oligos are engineered in a sequence that is
exactly opposite (hence “anti”) to the “sense” coding orientation of mRNA.
Because antisense drugs bind only short regions of the mRNA (rather than the
whole message itself), they contain far fewer nucleotides than the whole gene.
Moreover, since they are engineered to bind only to the matching sequence on a
specific mRNA, antisense drugs have both high selectivity and specificity, which
can be used to attack production of a single, disease-causing protein.
Genasense® is an antisense oligo that is designed to block the production of
Bcl-2.
We have
devoted significant resources towards the development of antisense oligos that
contain a phosphorothioate backbone, which is the nucleotide chain comprised of
ribose and phosphate groups. However, we also have patents and technologies
covering later generation technologies that involve mixed backbone structures,
as well as sterically fixed chemical bonds, that may further enhance the
molecule’s ability to bind to the intended target. Moreover, we have developed
certain formulations that can be used to more efficiently increase the uptake of
oligos into cells. Some of these advanced technologies may be incorporated into
future products from our DNA/RNA Medicines program.
Genasense®
as a Regulator of Apoptosis (“Programmed Cell Death”)
The
programmed death of cells, also known as apoptosis, is necessary to accommodate
the billions of new cells that are produced daily and also to eliminate aged or
damaged cells. However, abnormal regulation of the apoptotic process can result
in disease.
Cancer is
commonly associated with the over- or under-production of many types of
proteins. These proteins may be directly cancer-causing (i.e., “oncogenic”) or
they may contribute to the malignant nature of cancer (for instance, by
increasing the longevity of cancer cells or making them more likely to spread
throughout the body). The ability to selectively halt the production of certain
proteins may make the treatment of certain diseases more effective. Apoptosis is
regulated by a large number of proteins, particularly members of the Bcl-2
protein family. In an effort to make existing cancer therapy more effective, we
are developing Genasense® to target and block the production of Bcl-2, a protein
that is central to the process of apoptosis.
Bcl-2
as an Inhibitor of Programmed Cell Death
Normally,
when a cancer cell is exposed to treatment, such as with chemotherapy, radiation
or immunotherapy, a “death signal” is sent to an organelle within the cell
called the mitochondrion. The mitochondrion then releases a factor known as
cytochrome C that activates a series of enzymes called caspases. These enzymes
cause widespread fragmentation of cellular proteins and DNA, which ultimately
causes cell death.
Bcl-2 is
normally found in the mitochondrial membrane where it regulates the release of
cytochrome C. High levels of Bcl-2 are associated with most types of human
cancer, including major hematologic cancers such as lymphomas, myeloma, and
leukemia, and solid tumors such as melanoma and cancers of the lung, colon,
breast and prostate. In these diseases, Bcl-2 inhibits the release of cytochrome
C that would ordinarily be triggered by cancer therapy. Thus, Bcl-2 appears to
be a major contributor to both inherent and acquired resistance to cancer
treatments. Overcoming resistance to chemotherapy poses a major challenge for
cancer treatment.
In cancer
cells, Bcl-2 inhibits the process of programmed cell death, thereby allowing
cells to survive for much longer than normal cells. Genasense® has been
developed as a chemosensitizing drug to block production of Bcl-2, thereby
dramatically increasing the sensitivity of cancer cells to standard cancer
treatment.
Genasense®
Genasense®
has been designed to block the production of Bcl-2. Current science suggests
that Bcl-2 is a fundamental — although not sole — cause of the inherent
resistance of cancer cells to most types of existing anticancer treatments, such
as chemotherapy, radiation or monoclonal antibodies. Blocking Bcl-2, therefore,
may enable cancer treatments to be more effective. While Genasense® has
displayed some anticancer activity when used by itself, we believe the drug can
be optimally used as a means of amplifying the effectiveness of other cancer
therapies, most of which function by triggering apoptosis, which, as noted, is
relatively blocked in cancer cells due to over-production of Bcl-2.
Overview
of Preclinical and Clinical studies of Genasense®
Preclinical
Studies
A number
of preclinical studies in cell lines and in animals have shown enhancement of
tumor cell killing when Bcl-2 antisense was used in combination with standard
cancer therapies, including anti-metabolites, alkylating agents,
corticosteroids, other cytotoxic chemotherapy, radiation and monoclonal
antibodies. Several studies have demonstrated enhanced antitumor activity and
durable tumor regression in animals engrafted with human cancers that were
treated with Bcl-2 antisense followed by antitumor agents that induce programmed
cell death. These studies include human lymphoma, melanoma, breast cancer and
prostate cancers, which were treated with Genasense® in combination with
cyclophosphamide, dacarbazine, docetaxel and paclitaxel,
respectively.
Clinical
Studies
Genasense® has been
in clinical trials since 1995. We currently have efficacy and safety data on
over 2,500 patients in Phase 1, Phase 2 and Phase 3 clinical trials that have
been conducted in the U.S., Europe, South America and Australia. These studies
have included patients with a wide variety of tumor types, including advanced
melanoma, several types of acute and chronic leukemia, NHL, multiple myeloma and
cancers of the prostate, colon, lung, breast and other tumor types. Results of
these clinical trials suggest that Genasense® can be
administered to cancer patients with acceptable side-effects and that such
treatment may reduce the level of Bcl-2 protein in cancer cells.
Based on
work accomplished to date, we have focused on three indications for
Genasense®:
melanoma; CLL; and non-Hodgkin’s lymphoma. In addition, we have sought to
develop treatment methods for Genasense® that do
not involve the use of continuous IV infusions.
In 2007,
we began a new Phase 1 trial of Genasense®
administered as an IV infusion over 2 hours. This trial showed that the
maximally tolerable dose was 900 mg, and we have now advanced that study into a
trial at that dose administered twice per week. We have also continued to
escalate the single dose of Genasense® up to a
total of 1200 mg over 2 hours. The pharmacokinetic and pharmacodynamic data from
these trials may be useful for determining whether the prior requirement for
treatment by continuous IV infusion can ultimately be eliminated by these more
convenient dosing regimens.
For
additional background information on the drug application process and clinical
trials, see “Government Regulation.”
Ganite®
Ganite® as a Treatment
for Cancer-Related Hypercalcemia
In
October 2003, we began marketing Ganite® for the
treatment of cancer-related hypercalcemia. Ganite® is our
first drug to receive marketing approval. The principal patent covering the use
of Ganite® for its
approved indication, including potential extensions under Hatch-Waxman
provisions in the U.S., expired in April 2005.
Hypercalcemia
is a life-threatening condition caused by excessive buildup of calcium in the
bloodstream, which may occur in up to 20% of cancer patients. Gallium nitrate
was originally studied by the NCI as a new type of cancer chemotherapy. More
than 1,000 patients were treated in Phase 1 and Phase 2 trials, and the drug
showed promising antitumor activity against NHL, bladder cancer and other
diseases. In the course of these studies, gallium nitrate was also shown to
strongly inhibit bone resorption. Gallium nitrate underwent additional clinical
testing and was approved by the FDA in 1991 as a treatment for cancer-related
hypercalcemia. Lower doses of Ganite® were
also tested in patients with less severe bone loss, including bone metastases, a
cancer that has spread to bone, Paget’s disease, an affliction of older patients
that causes pain and disability, and osteoporosis.
Side
effects of Ganite® include
nausea, diarrhea and kidney damage. (A complete listing of Ganite®’s side
effects is contained in the product’s Package Insert that has been reviewed and
approved by the FDA.)
Other
Pipeline Products and Technology Platforms
Oral
Gallium-Containing Compounds
We have
sought to develop novel formulations of gallium-containing compounds that can be
taken orally and that will have extended patent protection. Such formulations
might be useful for diseases in which long-term low-dose therapy is deemed
desirable, such as bone metastases, Paget’s disease and osteoporosis. In March
2006, Genta and Emisphere Technologies, Inc. announced that the two companies
had entered into an exclusive worldwide licensing agreement to develop an oral
formulation of a gallium-containing compound. A number of candidate formulations
have been developed in this collaboration. In August 2007, we announced
submission of an Investigational New Drug Application, or IND, to the
Endocrinologic and Metabolic Drugs Division of the FDA for a new drug known as
G4544. G4544 is a new tablet formulation that enables oral absorption of the
active ingredient contained in Ganite®. Results
of the initial clinical trial were presented at a scientific meeting in the
second quarter of 2008. In January 2009, we announced that two new patents
related to our franchise in gallium-containing products have issued in the
United States. Applications similar to these patents are pending worldwide, and
several additional applications that address other compositions and uses have
been filed in the U.S. and other territories. These patents and filings provide
for claims of compositions and uses of gallium compounds that can be taken by
mouth over extended periods for treatment of skeletal diseases as well as other
indications.
Patents
and Proprietary Technology
It is our
policy to protect our technology by filing patent applications with respect to
technologies important to our business development. To maintain our competitive
position, we also rely upon trade secrets, unpatented know-how, continuing
technological innovation, licensing opportunities and certain regulatory
approvals (such as orphan drug designations).
We own or
have licensed several patents and applications to numerous aspects of
oligonucleotide technology, including novel compositions of matter, methods of
large-scale synthesis, methods of controlling gene expression and methods of
treating disease. Our patent portfolio includes approximately 65 granted patents
and 66 pending applications in the U.S. and foreign countries. We endeavor to
seek appropriate U.S. and foreign patent protection on our oligonucleotide
technology.
We have
licensed ten U.S. patents relating to the composition of Genasense® and its
backbone chemistry that expire between 2008 and 2015. The U.S. composition
patents for Genasense® may be
eligible for extension under Waxman-Hatch provisions. Corresponding patent
applications have been filed in three foreign countries. We also own five U.S.
patent applications relating to methods of using Genasense® expected
to expire in 2020 and 2026, with approximately 50 corresponding foreign patent
applications and granted patents.
Included
among our intellectual property rights are certain rights licensed from the NIH
covering phosphorothioate oligonucleotides. We also acquired from the University
of Pennsylvania exclusive rights to antisense oligonucleotides directed against
the Bcl-2 mRNA, as well as methods of their use for the treatment of cancer. The
claims of the University of Pennsylvania patents cover our proprietary antisense
oligonucleotide molecules, which target the Bcl-2 mRNA, including Genasense® and
methods employing them. Other related U.S. and corresponding foreign patent
applications are still pending.
Tesetaxel,
its potential uses, composition, and methods of manufacturing are covered under
a variety of patents licensed exclusively from Daiichi Sankyo, Inc. We believe
that composition-of-matter claims on tesetaxel extend to at least 2020 in the
U.S. and Europe and to 2022 in Japan. A number of other patents have been filed
worldwide for this compound.
The
principal patent covering the use of Ganite® for its
approved indication, including extensions expired in April 2005.
The
patent positions of biopharmaceutical and biotechnology firms, including Genta,
can be uncertain and can involve complex legal and factual questions.
Consequently, even though we are currently pursuing our patent applications with
the United States and foreign patent offices, we do not know whether any of our
applications will result in the issuance of any patents, or if any issued
patents will provide significant proprietary protection, or even if successful
that these patents will not be circumvented or invalidated. Even if issued,
patents may be circumvented or challenged and invalidated in the courts. Because
some applications in the United States are kept in secrecy until an actual
patent is issued, we cannot be certain that others have not filed patent
applications directed at inventions covered by our pending patent applications,
or that we were the first to file patent applications for such inventions. Thus,
we may become involved in interference proceedings declared by the U.S. Patent
and Trademark Office (or comparable foreign office or process) in connection
with one or more of our patents or patent applications to determine priority of
invention, which could result in substantial costs to us, as well as an adverse
decision as to priority of invention of the patent or patent application
involved.
Competitors
or potential competitors may have filed applications for, or have received
patents and may obtain additional patents and proprietary rights relating to,
compounds or processes competitive with those of ours. Accordingly, there can be
no assurances that our patent applications will result in issued patents or
that, if issued, the patents will afford protection against competitors with
similar technology. We cannot provide assurance that any patents issued to us
will not be infringed or circumvented by others, nor can there be any assurance
that we will obtain necessary patents or technologies or the rights to use such
technologies.
In
addition, there may be patents which are unknown to us and which may block our
ability to make, use or sell our product. We may be forced to defend ourselves
against charges of infringement or we may need to obtain expensive licenses to
continue our business. See the above Risk Factor entitled “We may be unable to
obtain or enforce patents, other proprietary rights and licenses to protect our
business; we could become involved in litigation relating to our patents or
licenses that could cause us to incur additional costs and delay or prevent our
introduction of new drugs to market”.
We also
rely upon unpatented trade secrets. No assurances can be given as to whether
third parties will independently develop substantially equivalent proprietary
information and techniques, or gain access to our trade secrets, or disclose
such technologies to the public, or that we can meaningfully maintain and
protect unpatented trade secrets.
We
require our employees, consultants, outside scientific collaborators, sponsored
researchers and other advisors to execute confidentiality agreements with us.
These agreements generally provide that all confidential information developed
or made known to an individual during the course of the individual’s
relationship with us 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 us, and made our exclusive property. There can be no
assurance, however, that these agreements will provide meaningful protection to
our trade secrets, or guarantee adequate remedies in the event of unauthorized
use or disclosure of confidential proprietary information or in the event of an
employee’s refusal to assign any patents to us in spite of his/her contractual
obligation.
Research
and Development
In
addition to our current focus in the areas described above, we continually
evaluate our programs in light of the latest market information and conditions,
the availability of third party funding, technological advances, financial
liquidity and other factors. As a result of such evaluations, we change our
product development plans from time to time and anticipate that we will continue
to do so. We recorded research and development expenses of $20.0 million, $13.5
million and $28.1 million during the years ended December 31, 2008, 2007 and
2006, respectively.
Sales
and Marketing
Currently
we do not have a sales force. At the present time, we do not
contemplate building a sales and marketing infrastructure in the United States
absent favorable regulatory actions on Genasense®. For international product
sales, we may distribute our products through collaborations with third
parties.
Manufacturing
and Raw Materials
Our
ability to conduct clinical trials on a timely basis, to obtain regulatory
approvals and to commercialize our products will depend in part upon our ability
to manufacture our products, either directly or through third parties, at a
competitive cost and in accordance with applicable FDA and other regulatory
requirements, including current Good Manufacturing Practice
regulations.
We
currently rely on third parties to manufacture our products. We have a
manufacturing and supply agreement with Avecia Biotechnology, Inc., or Avecia, a
leading multinational manufacturer of pharmaceutical products, to supply
quantities of Genasense®. This agreement renews automatically at the end of each
year, unless either party gives one-year notice. We are not obligated to
purchase further drug substance from Avecia prior to approval of Genasense®. We
believe this agreement is sufficient for our production needs with respect to
Genasense®.
For
Ganite® we have a manufacturing and supply agreement with Johnson Matthey Inc.
that renews automatically at the end of each year, unless either party gives
one-year notice. Under the agreement, we will purchase a minimum of 80% of our
requirements for quantities of Ganite®; however, there are no minimum purchase
requirements.
For
tesetaxel, we are currently evaluating new suppliers of both bulk drug substance
and finished goods with the intent of completely replacing the supply chain that
was previously used to manufacture this compound. Until the new supply chain is
established, we will continue to use investigational supplies of the compound
that was manufactured and is currently in inventory at Daiichi Sankyo Company,
Ltd.
The raw
materials that we require to manufacture our drugs are available only from a few
suppliers. Under the terms of our manufacturing and supply agreement, Avecia is
responsible for procuring the raw materials needed to manufacture Genasense®. We
believe that we have adequately addressed our needs for suppliers of raw
materials to manufacture Genasense® and Ganite® and to meet future customer
demand.
Human
Resources
As of
December 16, 2009, we had 16 employees, 6 of whom hold doctoral degrees. As of
that date, there were 10 employees engaged in research, development and other
technical activities and 6 in administration. None of our employees are
represented by a union. Most of our management and professional employees have
had prior experience and positions with pharmaceutical and biotechnology
companies. We believe we maintain satisfactory relations with our employees and
have not experienced interruptions of operations due to employee relations
issues.
Government
Regulation
Regulation
by governmental authorities in the United States and foreign countries is a
significant factor in our ongoing research and product development activities
and in the manufacture and marketing of our proposed products. All of our
therapeutic products will require regulatory approval by governmental agencies
prior to commercialization. In particular, human therapeutic products are
subject to rigorous 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
affect the development, testing, manufacturing, safety, labeling, storage,
recordkeeping and marketing of such products. The lengthy process of seeking
these approvals, and the subsequent compliance with applicable federal and, in
some cases, state statutes and regulations, require substantial expenditures.
Any failure by us, our collaborators or our licensees to obtain, or any delay in
obtaining, regulatory approvals could adversely affect the marketing of our
products and our ability to receive products or royalty
revenue.
The
activities required before a new pharmaceutical agent may be marketed in the
United States begin with preclinical testing. Preclinical tests include
laboratory evaluation of product chemistry and animal studies to assess the
potential safety and efficacy of the product and its formulations. The results
of these studies must be submitted to the FDA as part of an IND. An IND becomes
effective within 30 days of filing with the FDA unless the FDA imposes a
clinical hold on the IND. In addition, the FDA may, at any time, impose a
clinical hold on ongoing clinical trials. If the FDA imposes a clinical hold,
clinical trials cannot commence or recommence, as the case may be, without prior
FDA authorization, and then only under terms authorized by the FDA.
Clinical
trials are generally categorized into four phases.
Phase 1
trials are initial safety trials on a new medicine in which investigators
attempt to establish the dose range tolerated by a small group of patients using
single or multiple doses, and to determine the pattern of drug distribution and
metabolism.
Phase 2
trials are clinical trials to evaluate efficacy and safety in patients afflicted
with a specific disease. Typically, Phase 2 trials in oncology comprise 14 to 50
patients. Objectives may focus on dose-response, type of patient, frequency of
dosing or any of a number of other issues involved in safety and
efficacy.
In the
case of products for life-threatening diseases, the initial human testing is
generally done in patients rather than in healthy volunteers. Since these
patients are already afflicted with the target disease, it is possible that such
studies may provide results traditionally obtained in Phase 2
trials.
Phase 3
trials are usually multi-center, comparative studies that involve larger
populations. These trials are generally intended to be pivotal in importance for
the approval of a new drug. In oncology, Phase 3 trials typically involve 100 to
1,000 patients for whom the medicine is eventually intended. Trials are also
conducted in special groups of patients or under special conditions dictated by
the nature of the particular medicine and/or disease. Phase 3 trials often
provide much of the information needed for the package insert and labeling of
the medicine. A trial is fully enrolled when it has a sufficient number of
patients to provide enough data for the statistical proof of efficacy and safety
required by the FDA and others. After a sufficient period of follow-up has
elapsed to satisfactorily evaluate safety and efficacy, the trials’ results can
then be analyzed. Those results are then commonly reported at a scientific
meeting, in a medical journal and to the public.
Depending
upon the nature of the trial results, a company may then elect to discuss the
results with regulatory authorities such as the FDA. If the company believes the
data may warrant consideration for marketing approval of the drug, the results
of the 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 an NDA. In responding to an NDA, biologics license
application or premarket approval application, the FDA may grant marketing
approval, request additional information or deny the application if it
determines that the application does not satisfy its regulatory approval
criteria. There can be no assurance that the approvals that are being sought or
may be sought by us in the future will be granted on a timely basis, if at all,
or, if granted, will cover all the clinical indications for which we are seeking
approval or will not contain significant limitations in the form of warnings,
precautions or contraindications with respect to conditions of use. Phase 3b
trials are conducted after submission of a NDA, but before the product’s
approval for market launch. Phase 3b trials may supplement or complete earlier
trials, or they may seek different kinds of information, such as quality of life
or marketing. Phase 3b is the period between submission for approval and receipt
of marketing authorization.
After a
medicine is marketed, Phase 4 trials provide additional details about the
product’s safety and efficacy.
In
circumstances where a company intends to develop and introduce a novel
formulation of an active drug ingredient already approved by the FDA, clinical
and 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 new drug application; although no assurance can be given that a
product will be granted such treatment by the FDA.
Under
European Union regulatory systems, we may submit requests for marketing
authorizations either under a centralized or decentralized procedure. The
centralized procedure provides for the grant of a single marketing authorization
that is valid for all European Union member states. The decentralized procedure
provides for mutual recognition of national approval decisions. Under this
procedure, the holder of a national marketing authorization from a European
state may submit an application to the remaining member states. Within 90 days
of receiving the applications and assessment report, each member state must
decide whether to recognize approval.
We and
our third-party manufacturers are also subject to various foreign, federal,
state and local laws and regulations relating to health and safety, laboratory
and manufacturing practices, the experimental use of animals and the use,
manufacture, storage, handling and disposal of hazardous or potentially
hazardous substances, including radioactive compounds and infectious disease
agents, used in connection with our research and development work and
manufacturing processes. We currently incur costs to comply with laws and
regulations and these costs may become more significant.
Competition
In many
cases, our products under development will be competing with existing therapies
for market share. In addition, a number of companies are pursuing the
development of antisense technology and controlled-release formulation
technology and the development of pharmaceuticals utilizing such technologies.
We compete with fully integrated pharmaceutical companies that have
substantially more experience, financial and other resources and superior
expertise in research and development, manufacturing, testing, obtaining
regulatory approvals, marketing and distribution. Smaller companies may also
prove to be significant competitors, particularly through their collaborative
arrangements with large pharmaceutical companies or academic institutions.
Furthermore, academic institutions, governmental agencies and other public and
private research organizations have conducted and will continue to conduct
research, seek patent protection and establish arrangements for commercializing
products. Such products may compete directly with any products that may be
offered by us.
Our
competition will be determined in part by the potential indications for which
our products are developed and ultimately approved by regulatory authorities.
For certain of our potential products, an important factor in competition may be
the timing of market introduction of our or our competitors’ products.
Accordingly, the relative speed with which we can develop products, complete the
clinical trials and approval processes and supply commercial quantities of the
products to the market are expected to be important competitive factors. We
expect that competition among products approved for sale will be based, among
other things, on product efficacy, safety, reliability, availability, price,
patent position and sales, marketing and distribution capabilities. The
development by others of new treatment methods could render our products under
development non-competitive or obsolete.
Our
competitive position also depends upon our ability to attract and retain
qualified personnel, obtain patent protection, or otherwise develop proprietary
products or processes and secure sufficient capital resources for the
often-substantial period between technological conception and commercial
sales.
Available
Information
Our
reports that have been filed with the Securities and Exchange Commission, or
SEC, are available on our website free of charge, including our annual reports
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, Forms
3, 4 and 5 filed on behalf of directors and executive officers and any
amendments to such reports filed pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended, or the Exchange Act. Copies of our
Annual Report on Form 10-K may also be obtained without charge electronically or
by paper by contacting the Company at (908) 286-9800.
In
addition, we make available on our website (i) the charters for the committees
of the Board of Directors, including the Audit Committee, Compensation Committee
and Nominating and Corporate Governance Committee, (ii) the Company’s Code of
Business Conduct (the Code of Conduct) governing its directors, officers. Within
the time period required by the SEC, we will post on our website any
modifications to the Code of Business Conduct and Ethics, as required by the
Sarbanes-Oxley Act of 2002.
The
public may also read and copy the materials we file with the SEC at its Public
Reference Room at 100 F Street, N.E., Washington, DC 20549. The public may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. The SEC also maintains a web site at http://www.sec.gov
that contains reports, proxy and information statements and other information
regarding companies that file electronically with the SEC.
DESCRIPTION
OF PROPERTY
We lease
approximately 25,000 square feet of office space in Berkeley Heights, New
Jersey. Our annual rental costs for this space are approximately $0.7
million. Our lease on this space terminates in 2010.
LEGAL
PROCEEDINGS
In
September 2008, several shareholders of our Company, on behalf of themselves and
all others similarly situated, filed a class action complaint against our
Company, our Board of Directors, and certain of our executive officers in
Superior Court of New Jersey, captioned Collins v. Warrell, Docket No.
L-3046-08. The complaint alleged that in issuing convertible notes, our Board of
Directors, and certain officers breached their fiduciary duties, and our Company
aided and abetted the breach of fiduciary duty. On March 20, 2009, the Superior
Court of New Jersey granted the motion of our Company to dismiss the class
action complaint and dismissed the complaint with prejudice. The
plaintiffs have filed a notice of appeal to the Appellate Division of
the Superior Court from the order dismissing this case. On May 13,
2009, the plaintiffs filed a motion for relief from judgment based on a claim of
new evidence, which was denied on June 12, 2009. The plaintiffs also asked
the Appellate Division for a temporary remand to permit the Superior Court judge
to resolve the issues of the new evidence plaintiffs sought to raise, and the
Appellate Division granted the motion for temporary remand. Following briefing
and a hearing, the Superior Court denied the motion for relief from judgment on
August 28, 2009. Thus, this matter will proceed in the Appellate
Division. Plaintiffs’ brief before the Appellate Division was filed on
October 28, 2009 and our responsive brief is due on January 27,2010. We intend to continue
our vigorous defense of this lawsuit.
In
November 2008, a complaint against our Company and its transfer agent, BNY
Mellon Shareholder Services, was filed in the Supreme Court of the State of New
York by an individual stockholder. The complaint alleges that our Company and
our transfer agent caused or contributed to losses suffered by the stockholder.
Our Company denies the allegations of this complaint and intends to vigorously
defend this lawsuit.
PRICE
RANGE OF COMMON STOCK
Our
common stock was traded on the NASDAQ Global Market under the symbol “GNTA”
until May 7, 2008. The following table sets forth the high and low prices per
share of our common stock, as reported on the NASDAQ Global Market, for the
periods indicated.
|
|
High*
|
|
|
Low*
|
|
2007
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
168.00
|
|
|
$
|
93.00
|
|
Second
Quarter
|
|
$
|
123.00
|
|
|
$
|
84.00
|
|
Third
Quarter
|
|
$
|
90.00
|
|
|
$
|
40.00
|
|
Fourth
Quarter
|
|
$
|
65.50
|
|
|
$
|
26.00
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
43.50
|
|
|
$
|
18.50
|
|
Second
Quarter (through May 7, 2008)
|
|
$
|
22.50
|
|
|
$
|
7.50
|
|
*
|
all figures have been
retroactively adjusted to reflect a 1-for-50 reverse stock split effected
in June 2009.
|
Our
common stock began trading on the OTC Bulletin Board under the symbol “GNTA.OB”
on May 7, 2008. As a result of a reverse stock split effected on June 26, 2009,
our symbol was changed to “GETA.OB.” The following table sets forth the high and
low prices per share of our common stock, as reported on the OTC Bulletin Board,
for the periods indicated.
|
|
High*
|
|
|
Low*
|
|
2008
|
|
|
|
|
|
|
|
|
Second
Quarter (from May 7, 2008)
|
|
$
|
20.50
|
|
|
$
|
5.00
|
|
Third
Quarter
|
|
$
|
37.50
|
|
|
$
|
12.50
|
|
Fourth
Quarter
|
|
$
|
20.00
|
|
|
$
|
0.135
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
15.50
|
|
|
$
|
0.145
|
|
Second
Quarter
|
|
$
|
1.06
|
|
|
$
|
0.27
|
|
Third
Quarter
|
|
$
|
1.26
|
|
|
$
|
0.34
|
|
Fourth
Quarter (through December 16, 2009)
|
|
$
|
1.10
|
|
|
$
|
0.08
|
|
*
|
all figures prior to June 26,
2009 have been retroactively adjusted to reflect a 1-for-50
reverse stock split effected in June
2009.
|
The
closing price of our common stock on the OTC Bulletin Board on December 16, 2009
was $0.08 per share. There were 120 holders of record of our common stock as of
December 16, 2009. We estimate that there are approximately 19,250
beneficial owners of our common stock.
EQUITY
COMPENSATION PLAN INFORMATION
The
following table provides information as of December 31, 2008 with respect to the
shares of our common stock that may be issued under our existing equity
compensation plans.
Plan Category
|
|
Number of
Securities to
Be Issued Upon
Exercise of
Outstanding
Options and
Rights
|
|
|
Weighted-Average
Exercise Price of
Outstanding Options
and Rights
|
|
|
Number of
Securities
Remaining
Available for
Future Issuance
Under Equity
Compensation
Plans (Excluding
Securities
Reflected in the
First Column)
|
|
Equity compensation
plans approved by security holders (1)
|
|
|
39,594 |
|
|
$ |
1,053.50 |
(2)
|
|
|
3,070 |
(3)
|
Equity
compensation plans not approved by security holders
|
|
|
— |
|
|
|
|
|
|
|
— |
|
Total
|
|
|
39,594 |
|
|
$ |
1,053.50 |
|
|
|
3,070 |
|
(1)
|
Consists of the 1998 Stock
Incentive Plan and the Non-Employee Directors’ 1998 Stock Option
Plan.
|
(2)
|
This calculation takes into
account the 5,070 shares of Common Stock subject to outstanding restricted
stock units. Such shares will be issued at the time the restricted stock
units vest, without any cash consideration payable for those shares. If
the calculation did not take into account the 5,070 shares of Common Stock
subject to outstanding restricted stock units, the weighted-average
exercise price of outstanding options would be
$1,188.50.
|
(3)
|
Consists of shares available for
future issuance under the Non-Employee Directors’ 1998 Stock Option
Plan.
|
SELECTED
FINANCIAL INFORMATION
The
following tables summarize our selected financial information. You should read
the selected financial information together with our consolidated financial
statements and the related notes appearing at the end of this prospectus, and
the “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” section and other financial information included in this
prospectus.
|
|
Nine Months
ended
September 30,
2009
|
|
|
Year Ended December 31,
(in thousands except per share amounts)
|
|
|
|
(Unaudited)
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Consolidated Statements of
Operations Data :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License
fees & royalties
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,241
|
|
|
$
|
3,022
|
|
Development
funding
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,988
|
|
|
|
12,105
|
|
Product
sales — net
|
|
|
180
|
|
|
|
363
|
|
|
|
580
|
|
|
|
708
|
|
|
|
356
|
|
|
|
(512
|
)
|
Total
revenues
|
|
|
180
|
|
|
|
363
|
|
|
|
580
|
|
|
|
708
|
|
|
|
26,585
|
|
|
|
14,615
|
|
Costs
of goods sold
|
|
|
12
|
|
|
|
102
|
|
|
|
90
|
|
|
|
108
|
|
|
|
52
|
|
|
|
170
|
|
Provision
for excess inventory
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,350
|
|
Total
cost of goods sold
|
|
|
12
|
|
|
|
102
|
|
|
|
90
|
|
|
|
108
|
|
|
|
52
|
|
|
|
1,520
|
|
Operating
expenses — gross
|
|
|
24,854
|
|
|
|
33,410
|
|
|
|
26,116
|
|
|
|
59,764
|
|
|
|
37,006
|
|
|
|
101,324
|
|
sanofi-aventis
reimbursement
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,090
|
)
|
|
|
(43,292
|
)
|
Operating
expenses — net
|
|
|
24,854
|
|
|
|
33,410
|
|
|
|
26,116
|
|
|
|
59,764
|
|
|
|
30,916
|
|
|
|
58,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on forgiveness of debt
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,297
|
|
|
|
11,495
|
|
Amortization
of deferred financing costs and debt discount
|
|
|
(22,362
|
)
|
|
|
(11,229
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Fair
value — conversion feature liability
|
|
|
(19,040
|
)
|
|
|
(460,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Fair
value — warrant liability
|
|
|
(7,655
|
)
|
|
|
(2,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
All
other (expense)/income-net
|
|
|
(837
|
)
|
|
|
(1,435
|
)
|
|
|
836
|
|
|
|
1,454
|
|
|
|
502
|
|
|
|
(147
|
)
|
Loss
before income taxes
|
|
|
(74,580
|
)
|
|
|
(507,813
|
)
|
|
|
(24,790
|
)
|
|
|
(57,710
|
)
|
|
|
(2,584
|
)
|
|
|
(33,589
|
)
|
Income
tax benefit
|
|
|
—
|
|
|
|
1,975
|
|
|
|
1,470
|
|
|
|
929
|
|
|
|
381
|
|
|
|
904
|
|
Net
loss
|
|
$
|
(74,580
|
)
|
|
$
|
(505,838
|
)
|
|
$
|
(23,320
|
)
|
|
$
|
(56,781
|
)
|
|
$
|
(2,203
|
)
|
|
$
|
(32,685
|
)
|
Net
loss per basic and diluted common share *
|
|
$
|
(0.98
|
)
|
|
$
|
(455.09
|
)
|
|
$
|
(39.36
|
)
|
|
$
|
(125.88
|
)
|
|
$
|
(6.42
|
)
|
|
$
|
(122.87
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used in computing net loss per basic and diluted common
share*
|
|
|
75,850
|
|
|
|
1,112
|
|
|
|
592
|
|
|
|
451
|
|
|
|
343
|
|
|
|
266
|
|
|
*
|
all figures prior to June 26,
2009 have been retroactively adjusted to reflect a 1-for-50 reverse stock
split effected in June 2009.
|
|
|
At
September
30,
2009
(unaudited)
|
|
|
At
December 31,
(in
thousands)
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
cash equivalents and marketable securities
|
|
$
|
7,383
|
|
|
$
|
4,908
|
|
|
$
|
7,813
|
|
|
$
|
29,496
|
|
|
$
|
21,282
|
|
|
$
|
42,247
|
|
Working
capital (deficit)
|
|
|
(4,010
|
)
|
|
|
(5,220
|
)
|
|
|
877
|
|
|
|
12,682
|
|
|
|
11,703
|
|
|
|
(4,269
|
)
|
Total
assets
|
|
|
18,853
|
|
|
|
12,693
|
|
|
|
29,293
|
|
|
|
51,778
|
|
|
|
27,386
|
|
|
|
50,532
|
|
Total
stockholders’ equity (deficit)
|
|
|
3,494
|
|
|
|
(4,864
|
)
|
|
|
2,931
|
|
|
|
14,642
|
|
|
|
15,697
|
|
|
|
1,752
|
|
SUPPLEMENTARY
FINANCIAL INFORMATION
The
following table presents our condensed operating results for each of the eight
(8) fiscal quarters through the period ended September 30, 2009. The information
for each of these quarters is unaudited. In the opinion of management, all
necessary adjustments, which consist only of normal and recurring accruals, have
been included to fairly present the unaudited quarterly results. This data
should be read together with our consolidated financial statements and the notes
thereto, the Report of Independent Registered Public Accounting Firm and
Management’s Discussions and Analysis of Financial Condition and Results of
Operations.
|
|
Sep
30
2009
|
|
|
Jun
30
2009
|
|
|
Mar
31
2009
|
|
|
Dec
31
2008
|
|
|
Sep
30
2008
|
|
|
June
30
2008
|
|
|
Mar
31
2008
|
|
|
Dec
31
2007
|
|
Total
revenues
|
|
$ |
49 |
|
|
$ |
69 |
|
|
$ |
62 |
|
|
$ |
— |
|
|
$ |
115 |
|
|
$ |
131 |
|
|
$ |
117 |
|
|
$ |
266 |
|
Net
income/(loss)
|
|
$ |
(20,431 |
) |
|
$ |
(43,082 |
) |
|
$ |
(11,067 |
) |
|
$ |
29,569 |
|
|
$ |
212,613 |
|
|
$ |
(738,364 |
) |
|
$ |
(9,657 |
) |
|
$ |
(1,748 |
) |
Net
income/(loss) per basic common share: *
|
|
$ |
(0.15 |
) |
|
$ |
(0.63 |
) |
|
$ |
(0.61 |
) |
|
$ |
12.90 |
|
|
$ |
289.22 |
|
|
$ |
(1,004.58 |
) |
|
$ |
(14.29 |
) |
|
$ |
(2.85 |
) |
Net
income/(loss) per diluted common share: *
|
|
$ |
(0.15 |
) |
|
$ |
(0.63 |
) |
|
$ |
(0.61 |
) |
|
$ |
1.08 |
|
|
$ |
5.12 |
|
|
$ |
(1,004.58 |
) |
|
$ |
(14.29 |
) |
|
$ |
(2.85 |
) |
Shares
used in computing basic per common share amounts: *
|
|
|
139,349 |
|
|
|
68,870 |
|
|
|
17,999 |
|
|
|
2,292 |
|
|
|
735 |
|
|
|
735 |
|
|
|
676 |
|
|
|
612 |
|
Shares
used in computing diluted per common share amounts: *
|
|
|
139,349 |
|
|
|
68,870 |
|
|
|
17,999 |
|
|
|
27,401 |
|
|
|
41,524 |
|
|
|
735 |
|
|
|
676 |
|
|
|
612 |
|
*
|
all figures prior to June 26,
2009 have been retroactively adjusted to reflect a 1-for-50 reverse stock
split effected in June 2009.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
Overview
Genta
Incorporated is a biopharmaceutical company engaged in pharmaceutical research
and development. We are dedicated to the identification, development and
commercialization of novel drugs for the treatment of cancer and related
diseases. Our research portfolio consists of two major programs: DNA/RNA
Medicines (which includes our lead oncology drug, Genasense®); and Small
Molecules (which includes our marketed product, Ganite®, and the investigational
compounds tesetaxel and G4544). We have had recurring annual operating losses
since inception and we expect 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 the eventual establishment of a sales and marketing
organization.
From our
inception to September 30, 2009, we have incurred a cumulative net deficit of
$1,019.5 million. Our recurring losses from operations and our negative cash
flow from operations raise substantial doubt about our ability to continue as a
going concern. Our consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty. We expect
that such losses will continue at least until one or more of our product
candidates are approved by one or more regulatory authorities for commercial
sale in one or more indications. We have experienced significant quarterly
fluctuations in operating results and we expect that these fluctuations in
revenues, expenses and losses will continue.
We will
require additional cash in order to maximize the commercial opportunity and
continue clinical development of our product candidates. Alternatives available
to us to sustain our operations include collaborative agreements, equity
financing, debt 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 funds will be available on
favorable terms, if at all. We will need substantial additional funds before we
can expect to realize significant product revenue.
We had
$7.4 million of cash and cash equivalents on hand at September 30,
2009. Cash used in operating activities during the first nine months
of 2009 was $15.1 million.
On June
9, 2008, we placed $20 million of senior secured convertible notes with certain
institutional and accredited investors. On April 2, 2009, we placed
approximately $6 million of senior secured convertible notes, or the April 2009
Notes, and corresponding warrants to purchase common stock. On July 7, 2009, we
entered into a securities purchase agreement with certain accredited
institutional investors to place up to $10 million in aggregate principal amount
of units consisting of (i) 70% unsecured subordinated convertible notes, or the
July 2009 Notes, and (ii) 30% common stock. The July 2009 Notes bear
interest at an annual rate of 8% payable at quarterly intervals in other July
2009 Notes to the holder, and are convertible into shares of our common stock at
a conversion rate of 10,000 shares of common stock for every $1,000.00 of
principal. In connection with the sale of the units, we also issued to the
investors two-year warrants to purchase common stock in an amount equal to 25%
of the number of shares of common stock issuable upon conversion of the July
2009 Notes purchased by each investor, or July 2009 Warrants. We closed on $3.0
million of such July 2009 Notes, common stock and July 2009 Warrants on July 7,
2009.
On
September 4, 2009, we closed on $7 million of additional July 2009 Notes, common
stock and July 2009 Warrants. Also on September 4, 2009, the Company entered
into a securities purchase agreement with certain accredited institutional
investors, pursuant to which we issued $3 million of units consisting of (i) 70%
September 2009 Notes, and (ii) 30% common stock, or the September 2009
financing. The notes bear interest at an annual rate of 8% payable at
quarterly intervals in other convertible notes to the holder, and are
convertible into shares of our common stock at a conversion rate of 10,000
shares of common stock for every $1,000.00 of principal. In connection with
the sale of the units, we also issued to the investors two-year warrants to
purchase common stock in an amount equal to 25% of the number of shares of
common stock issuable upon conversion of the September 2009 Notes purchased by
each investor, or September 2009 Warrants.
Presently,
with no further financing, we project that we will run out of funds in the
second quarter of 2010. The terms of the April 2009 Notes enable those
noteholders, at their option, to purchase additional notes with similar terms.
We currently do not have any additional financing in place. If we are
unable to raise additional funds, we could be required to reduce our spending
plans, reduce our workforce, license one or more of our products or technologies
that we would otherwise seek to commercialize ourselves, or sell certain assets.
There can be no assurance that we can obtain financing, if at all, on terms
acceptable to us.
Most
recently, our principal goal has been to secure regulatory approval for the
marketing of Genasense®. Genasense® has been studied in combination with a wide
variety of anticancer drugs in a number of different cancer indications. We have
reported results from randomized trials of Genasense® in a number of diseases.
Under our own sponsorship or in collaboration with others, we are currently
conducting additional clinical trials. We are especially interested in the
development, regulatory approval, and commercialization of Genasense® in at
least three diseases: melanoma; chronic lymphocytic leukemia, referred to herein
as CLL; and non-Hodgkin’s lymphoma, referred to herein as NHL.
Genasense
®
has been submitted for regulatory approval in the U.S. on two occasions and to
the European Union (EU) once. These applications proposed the use of Genasense
®
plus chemotherapy for patients with advanced melanoma (U.S. and EU) and relapsed
or refractory chronic lymphocytic leukemia (CLL) (U.S.-only). None of these
applications resulted in regulatory approval for marketing. Nonetheless, we
believe that Genasense ® can
ultimately be approved and commercialized and we have undertaken a number of
initiatives in this regard that are described below.
Our major
current initiative is a randomized controlled trial that tests whether the
addition of Genasense® to standard chemotherapy can improve outcomes for
patients with advanced melanoma. In August 2007 we initiated a new Phase 3 trial
of Genasense ® plus
chemotherapy in advanced melanoma. This trial, known as AGENDA, is a randomized,
double-blind, placebo-controlled study in which patients are randomly assigned
to receive Genasense ® plus
dacarbazine or dacarbazine alone. The study uses LDH as a biomarker to identify
patients who are most likely to respond to Genasense ®, based
on data obtained from our preceding trial in melanoma. The co-primary endpoints
of AGENDA are progression-free survival (PFS) and overall survival.
The
design of AGENDA was based on data obtained from a similarly designed Phase 3
trial that was published in 2006. Results from this antecedent study showed that
treatment with Genasense® plus dacarbazine compared with dacarbazine alone was
associated with a statistically significant increase in overall response,
complete response, durable response, and progression-free survival (PFS).
However, the primary endpoint of overall survival approached but did not quite
reach statistical significance (P=0.077) in the entire “intent-to-treat”
population. Our further analysis of this trial showed that there was a
significant treatment interaction effect related to levels of a blood enzyme
known as LDH. When this effect was analyzed by treatment arm, survival was shown
to be significantly superior for patients with a non-elevated LDH who received
Genasense® (P=0.018; n=508). Moreover, this benefit was particularly noteworthy
for patients whose baseline LDH did not exceed 80% of the upper limit of normal
for this lab value. LDH had also been previously described by others as the
single most important prognostic factor in advanced melanoma. Thus, the AGENDA
trial seeks to confirm the observations that were previously observed in the
antecedent trial in a biomarker-defined patient population.
In March
2009, we completed accrual of 314 patients into AGENDA. In October 2009, we
announced that AGENDA did not show a statistically significant benefit for its
co-primary endpoint of progression-free survival. Secondary endpoints
of overall response rate and disease control rate (which includes complete and
partial responses, plus stable disease greater than 3 months duration) also did
not show a statistically significant benefit. According to the prespecified
analysis plan, the statistical significance of durable response, (a secondary
endpoint that measures the proportion of patients who achieved a complete or
partial response that lasts greater than 6 months), is too early to evaluate.
However, the observed differences in progression-free survival, overall
response, disease control and durable response all numerically favored the group
that received Genasense®.
Overall
survival, the other co-primary endpoint in AGENDA, is too early to evaluate, as
prospectively specified. An analysis for futility, which was defined
as greater than 50% conditional power to observe a statistically significant
benefit of Genasense® (P < 0.05) under the prospectively specified hazard
ratio of 0.69, was conducted for the co-primary endpoint of overall
survival. AGENDA passed this futility analysis, and an Independent
Data Monitoring Committee has recommended that the trial continue to completion
for the determination of the overall survival endpoint. The safety profile of
Genasense® in AGENDA was consistent with prior studies. Pending adequacy of
financial resources and other contingencies noted herein, Genta currently
intends to continue the AGENDA trial in order to determine whether the addition
of Genasense to dacarbazine is associated with a statistically significant
increase in overall survival. If that association is demonstrated, we
currently expect that Genta would submit regulatory applications for the
marketing approval of Genasense® on a worldwide basis.
We have
been conducting other trials of Genasense® in melanoma, including a Phase 2
trial of Genasense® plus chemotherapy consisting of Abraxane® (paclitaxel
protein-bound particles for injectable suspension) (albumin bound) plus
temozolomide (Temodar®). We have expected to examine whether different dosing
regimens would improve the dosing convenience. We are currently assessing
whether to continue such trials.
Our NDA
for the use of Genasense® plus
chemotherapy in patients with relapsed or refractory CLL was not approved. We
conducted a randomized Phase 3 trial in 241 patients with relapsed or refractory
CLL who were treated with fludarabine and cyclophosphamide (Flu/Cy) with or
without Genasense® . The
trial achieved its primary endpoint: a statistically significant increase (17%
vs. 7%; P=0.025) in the proportion of patients who achieved a complete response
(CR), defined as a complete or nodular partial response. Patients who achieved
this level of response also experienced disappearance of predefined disease
symptoms. A key secondary endpoint, duration of CR, was also significantly
longer for patients treated with Genasense® (median
exceeding 36+ months in the Genasense® group,
versus 22 months in the chemotherapy-only group).
Several
secondary endpoints were not improved by the addition of Genasense® . The
percentage of patients who experienced serious adverse events was increased in
the Genasense® arm;
however, the percentages of patients who discontinued treatment due to adverse
events were equal in the treatment arms. The incidence of certain serious
adverse reactions, including but not limited to nausea, fever and
catheter-related complications, was increased in patients treated with
Genasense®
..
We
received a “non-approvable” notice from the FDA in December 2006 for our NDA
that proposed the use of Genasense® in combination with Flu/Cy for the treatment
of patients with relapsed or refractory CLL who had previously received
fludarabine. We appealed this decision with FDA’s Center for Drug Evaluation and
Research (CDER) using the agency’s Formal Dispute Resolution process. In June
2008, we announced results from 5 years of follow-up on patients who had been
accrued to our completed Phase 3 trial. These data showed that
patients treated with Genasense® plus chemotherapy who achieved either a
complete response (CR) or a partial response (PR) also achieved a statistically
significant increase in survival compared with patients treated with
chemotherapy alone (median = 56 months vs. 38 months,
respectively). After 5 years of follow-up, 22 of 49 (45%) responders
in the Genasense® group were alive compared with 13 of 54 (24%) responders in
the chemotherapy-only group (hazard ratio = 0.6; P = 0.038). Moreover, with 5
years of follow-up, 12 of 20 patients (60%) in the Genasense® group who achieved
CR were alive, 5 of these patients remained in continuous CR without relapse,
and 2 additional patients had relapsed but had not required additional therapy.
By contrast, only 3 of 8 CR patients in the chemotherapy-only group were alive,
all 3 had relapsed, and all 3 had required additional anti-leukemic
treatment.
In March
2009, CDER decided that available data were still insufficient to support
approval of Genasense® in CLL, and the Agency recommended conducting another
clinical trial. We have made no decision whether to conduct this study or
whether to pursue this application without further study for regulatory approval
in other territories..
As with
melanoma, we believe the clinical activity in CLL, as well as in non-Hodgkin’s
lymphoma and other types of cancer, should be explored with additional clinical
research. We are currently reassessing whether to proceed with such
studies.
In March
2008, we obtained an exclusive worldwide license for tesetaxel from Daiichi
Sankyo Company Ltd. Tesetaxel is a novel taxane compound that is taken by mouth.
Tesetaxel has completed Phase 2 trials in a number of cancer types, and the drug
has shown definite evidence of antitumor activity in gastric cancer and breast
cancer. Tesetaxel also appears to be associated with a lower incidence of
peripheral nerve damage, a common side effect of taxanes that limits the maximum
amount of these drugs that can be given to patients. At the time we obtained the
license, tesetaxel was on “clinical hold” by FDA due to the occurrence of
several fatalities in the setting of severe neutropenia. In the second quarter
of 2008, we filed a response to the FDA requesting a lift of the clinical hold,
which was granted in June 2008. In January 2009, we announced initiation of a
new clinical trial with tesetaxel to examine the clinical pharmacology of the
drug over a narrow dosing range around the established Phase 2 dose. We expect
accrual to the initial phase of this study to be complete in December
2009.
We have
also submitted applications to FDA for designation of tesetaxel as an Orphan
Drug for treatment of patients with advanced gastric cancer and for patients
with advanced melanoma. Both of these designations were granted. Our
initial priorities for clinical testing of tesetaxel includes the evaluation of
safety and efficacy in patients with advanced gastric cancer, advanced melanoma
and prostate cancer. Other disease priorities for clinical research include
cancers of the bladder and breast, among other disorders. Maintenance of the
license from Daiichi Sankyo requires certain milestone payments. If such
payments are not made, Daiichi Sankyo may elect to terminate the
license.
Our third
pipeline product is G4544, which is a novel oral formulation of a
gallium-containing compound that we developed in collaboration with Emisphere
Technologies, Inc. We completed a single-dose Phase 1 study of an initial
formulation of this new drug known as “G4544(a)”, the results of which were
presented in the second quarter of 2008. We are currently contemplating a second
study using a modified formulation, known as “G4544(b)”, in order to test
whether this formulation will prove more clinically acceptable.
If we are
able to identify a clinically and commercially acceptable formulation of G4544
or another oral gallium-containing compound, we currently intend to pursue a
505(b)(2) strategy to establish bioequivalence to our marketed product, Ganite®,
for its initial regulatory approval. We believe a drug of this type may also be
broadly useful for treatment of other diseases associated with accelerated bone
loss, such as bone metastases, Paget’s disease and osteoporosis. In addition,
new uses of gallium-containing compounds have been identified for treatment of
certain infectious diseases. While we have no current plans to begin clinical
development in the area of infectious disease, we intend to support research
conducted by certain academic institutions by providing clinical supplies of our
gallium-containing drugs.
We are
currently marketing Ganite® in the U.S., which is an intravenous formulation of
gallium, for treatment of cancer-related hypercalcemia that is resistant to
hydration. We have announced our intention to seek a buyer for Ganite®, but we
have not yet found an acceptable transaction.
Results
of Operations for the Three Months Ended September 30, 2009 and September 30,
2008
($ thousands)
|
|
2009
|
|
|
2008
|
|
Product
sales – net
|
|
$
|
49
|
|
|
$
|
115
|
|
Cost
of goods sold
|
|
|
10
|
|
|
|
26
|
|
Gross
margin
|
|
|
39
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
5,874
|
|
|
|
5,255
|
|
Selling,
general and administrative
|
|
|
8,869
|
|
|
|
2,308
|
|
Total
operating expenses
|
|
|
14,743
|
|
|
|
7,563
|
|
|
|
|
|
|
|
|
|
|
Other
(expense)/income:
|
|
|
|
|
|
|
|
|
Interest
income and other income/(expense), net
|
|
|
(12
|
)
|
|
|
56
|
|
Interest
expense
|
|
|
(265
|
)
|
|
|
(769
|
)
|
Amortization
of deferred financing costs and debt discount
|
|
|
(5,450
|
)
|
|
|
(3,600
|
)
|
Fair
value – conversion feature liability
|
|
|
-
|
|
|
|
220,000
|
|
Fair
value – warrant liability
|
|
|
-
|
|
|
|
4,400
|
|
Total
other income/(expense), net
|
|
|
(5,727
|
)
|
|
|
220,087
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(20,431
|
)
|
|
$
|
212,613
|
|
Product
sales-net
Product
sales-net were $49 thousand for the three months ended September 30, 2009,
compared with $115 thousand for the three months ended September 30, 2008. The
unit price of Ganite® was 28% higher than in the comparison period due to a
price increase. Unit sales of Ganite ® declined 48% due to the continued absence
of promotional support.
Cost of goods
sold
Cost of
goods sold as a percentage of product sales-net declined from 22.6% in the
prior-year period to 20.4%, primarily due to the effect of higher unit prices
for Ganite®.
Research and development
expenses
Research
and development expenses were $5.9 million for the three months ended September
30, 2009, compared with $5.3 million for the three months ended September 30,
2008.
During
2009, with the establishment of the 2009 Stock Incentive Plan, or the 2009 Plan,
and implementation of two Equity Award Exchange programs, outstanding stock
option awards granted under the 1998 Non-Employee Directors Plan, as amended and
1998 Stock Incentive Plan, as amended, were exchanged for grants of new
restricted stock units (RSUs). Incremental compensation cost for the new RSUs
was measured as the excess of the fair value of the RSUs over the fair value of
the stock option awards on the date of exchange. The incremental compensation
cost of the RSUs is being recognized over the remaining amortization period of
the exchanged stock option awards. Share-based compensation expense recognized
for the three months ended September 30, 2009 and 2008 was $2.9 million and $35
thousand, respectively for those employees categorized as research and
development. Partially offsetting this increase were lower expenses on the
AGENDA clinical trial and lower payroll costs, resulting from lower
headcount.
Research
and development expenses incurred on the Genasense® project during the three
months ended September 30, 2009 were approximately $5.1 million, representing
87% of research and development expenses.
Due to
the significant risks and uncertainties inherent in the clinical development and
regulatory approval processes, the nature, timing and costs of the efforts
necessary to complete projects in development are subject to wide variability.
Results from clinical trials may not be favorable. Data from clinical trials are
subject to varying interpretation and may be deemed insufficient by the
regulatory bodies that review applications for marketing approvals. As such,
clinical development and regulatory programs are subject to risks and changes
that may significantly impact cost projections and timelines.
Selling, general and
administrative expenses
Selling,
general and administrative expenses were $8.9 million for the three months ended
September 30, 2009, compared with $2.3 million for the three months ended
September 30, 2008. Share-based compensation expense recognized for the three
months ended September 30, 2009 and 2008 was $6.6 million and $0.1 million,
respectively.
Interest and other
income/(expense), net
Interest
expense
The total
of interest and other income/(expense), net and interest expense resulted in
expense, net of $(0.3) million for the three months ended September 30, 2009,
compared to $(0.7) million for the prior-year period. A lower balance of our
2008 Notes, resulting in lower interest expense, was partially offset by
interest expense on our April 2009 Notes, July 2009 Notes and September 2009
Notes.
Amortization of deferred
financing costs and debt discount
For the
three months ended September 30, 2009, the amortization of deferred financing
costs and debt discount for the 2008 Notes was $2.2 million, for the April 2009
Notes $1.5 million, for the July 2009 Notes $1.5 million and for the September
2009 Notes and July 2009 Notes issued in September $0.3 million. In the
prior-year period, the $3.6 million amortization of deferred financing costs and
debt discount resulted from the 2008 Notes.
Fair value – conversion
feature liability
On the
dates that we issued the 2008 Notes and the April 2009 Notes, there were an
insufficient number of authorized shares of common stock in order to permit
conversion of all of the notes. When there are insufficient authorized shares to
allow for settlement of convertible financial instruments, the conversion
obligation for notes should be classified as a liability and measured at fair
value on the balance sheet.
On June
9, 2008, based upon a Black-Scholes valuation model, we calculated a fair value
of the conversion feature of the 2008 Notes of $380.0 million and expensed
$360.0 million, the amount that exceeded the proceeds of the $20.0 million from
the closing. On June 30, 2008, based upon a Black-Scholes valuation model, we
expensed an additional $380.0 million to mark the conversion feature liability
of the 2008 Note to market. At September 30, 2008, the fair value was valued at
$520.0 million, resulting in a reduction in the conversion feature liability of
$220.0 million, with the resultant reduction in the liability included in
earnings.
Fair value – warrant
liability
The
warrants that were issued with the 2008 Notes were also treated as liabilities,
due to the insufficient number of authorized shares of common stock at the time
that they were issued. The warrants issued were initially recorded at a fair
value of $7.6 million based upon a Black-Scholes valuation model and re-measured
at June 30, 2008, resulting in expense of $7.2 million in June 2008. At
September 30, 2008, the fair value of the warrant liability was valued at $10.4
million, resulting in a reduction in the warrant liability of $4.4 million, with
the resultant reduction in the liability included in earnings.
Net
(loss)/income
Genta
recorded a net loss of $20.4 million, or net loss per basic and diluted share of
$(0.15), for the three months ended September 30, 2009 and reported net income
of $212.6 million, or net income per basic share of $289.23 per share and net
income per fully diluted share of $5.12 per share, for the three months ended
September 30, 2008.
In
comparison to the prior-year quarter, the net loss for the three months ended
September 30, 2009 was primarily due to the absence of income as a result of
marking to market the conversion feature liabilities of our notes and warrants,
slightly offset by higher share-based compensation expense and higher
amortization of financing costs and debt discount.
Results
of Operations for the Nine Months Ended September 30, 2009 and September 30,
2008
($ thousands)
|
|
2009
|
|
|
2008
|
|
Product
sales – net
|
|
$
|
180
|
|
|
$
|
363
|
|
Cost
of goods sold
|
|
|
12
|
|
|
|
79
|
|
Gross
margin
|
|
|
168
|
|
|
|
284
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
11,846
|
|
|
|
16,146
|
|
Selling,
general and administrative
|
|
|
13,008
|
|
|
|
8,534
|
|
Settlement
of office lease obligation
|
|
|
—
|
|
|
|
3,307
|
|
Reduction
in liability for settlement of litigation
|
|
|
—
|
|
|
|
(340
|
)
|
Total
operating expenses
|
|
|
24,854
|
|
|
|
27,647
|
|
|
|
|
|
|
|
|
|
|
Other
(expense)/income:
|
|
|
|
|
|
|
|
|
Interest
income and other income, net
|
|
|
4
|
|
|
|
188
|
|
Interest
expense
|
|
|
(841
|
)
|
|
|
(992
|
)
|
Amortization
of deferred financing costs and debt discount
|
|
|
(22,362
|
)
|
|
|
(4,441
|
)
|
Fair
value – conversion feature liability
|
|
|
(19,040
|
)
|
|
|
(500,000
|
)
|
Fair
value – warrant liability
|
|
|
(7,655
|
)
|
|
|
(2,800
|
)
|
Total
other income/(expense), net
|
|
|
(49,894
|
)
|
|
|
(508,045
|
)
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(74,580
|
)
|
|
$
|
(535,408
|
)
|
Product
sales-net
Product
sales-net were $180 thousand for the nine months ended September 30, 2009,
compared with $363 thousand for the nine months ended September 30, 2008. Unit
sales of Ganite® declined 50%.
Cost of goods
sold
During
the nine months ended September 30, 2009, most of the sales of Ganite® were from
product that had been previously accounted for as excess
inventory.
Research and development
expenses
Research
and development expenses were $11.8 million for the nine months ended September
30, 2009, compared with $16.1 million for the nine months ended September 30,
2008. Share-based compensation expense recognized for the nine months ended
September 30, 2009 and 2008 was $2.9 million and $0.1 million, respectively, for
those employees categorized as research and development. This increase was more
than offset by lower expenses on the AGENDA clinical trial and lower payroll
costs, resulting from lower headcount. In addition, in March 2008, we entered
into a worldwide license agreement for tesetaxel, resulting in our recognition
of $2.5 million for license payments.
Research
and development expenses incurred on the Genasense® project during the nine
months ended September 30, 2009 were approximately $10.5 million, representing
89% of research and development expenses.
Selling, general and
administrative expenses
Selling,
general and administrative expenses were $13.0 million for the nine months ended
September 30, 2009, compared with $8.5 million for the nine months ended
September 30, 2008. Share-based compensation expense recognized for the nine
months ended September 30, 2009 and 2008 was $6.7 million and $0.3 million,
respectively. This increase was partially offset by lower payroll costs and
lower office rent of $0.8 million, resulting from our termination of a lease for
one floor of office space in May 2008.
Settlement of office lease
obligation
In May
2008, we entered into an amendment of our lease for office space with The
Connell Company, (Connell) whereby the lease for one floor of our office space
in Berkeley Heights, New Jersey was terminated. Connell received a termination
payment of $1.3 million, comprised solely of our security deposits and we agreed
to pay Connell $2.0 million on July 1, 2009. We accrued for the $2.0 million and
it is included on our Consolidated Balance Sheets. In January 2009, we entered
into another amendment of our agreement with Connell whereby our future payment
of $2.0 million is now payable on January 1, 2011, with 6.0% interest paid in
arrears.
Interest and other income,
net
Interest
expense
The total
of the above referenced accounts resulted in expense, net of $(0.8) million for
the nine months ended September 30, 2009 and September 30, 2008. Lower interest
expense on our 2008 Notes, (due to conversion), was offset by interest on our
April 2009 Notes, July 2009 Notes and September 2009 Notes.
Amortization of deferred
financing costs and debt discount
For the
nine months ended September 30, 2009, the amortization of deferred financing
costs and debt discount for the 2008 Notes was $18.3 million, for the April 2009
Notes $2.3 million, for the July 2009 Notes $1.5 million and for the September
2009 Notes and July Notes issued in September $0.3 million. In the prior-year
period, the $4.4 million amortization of deferred financing costs and debt
discount resulted from the 2008 Notes.
Fair
value – conversion feature liability
On the
dates that we issued the 2008 Notes and the April 2009 Notes, there were an
insufficient number of authorized shares of common stock in order to permit
conversion of all of the notes. When there are insufficient authorized shares to
allow for settlement of convertible financial instruments, the conversion
obligation for the notes should be classified as a liability and measured at
fair value on the balance sheet.
On April
2, 2009, using a Black-Scholes valuation model, we calculated a fair value of
the conversion feature of the April 2009 Notes of $67.8 million and expensed
$61.8 million, the amount that exceeded the proceeds of the $6.0 million from
the closing. On June 26, 2009, our stockholders, at a Special Meeting of
Stockholders, authorized our Board of Directors to effect a reverse stock split
and our Board of Directors effected a 1-for-50 reverse stock split, resulting in
us having enough shares of common stock in order to permit conversion of all the
April 2009 Notes. We re-measured the conversion feature liability at $25.0
million, resulting in net expense of $19.0 million.
Based
upon a Black-Scholes valuation model, we calculated a fair value of the
conversion feature of the 2008 Notes of $380.0 million on June 9, 2008 and
expensed $360.0 million, the amount that exceeded the proceeds of the $20.0
million from the closing. At September 30, 2008, the fair value of our
conversion feature liability was valued at $520.0 million, resulting in expense
of $500.0 million for the nine months ended September 30, 2008.
Fair
value – warrant liability
The
warrants that were issued with the 2008 Notes and the April 2009 Notes were also
treated as liabilities, due to the insufficient number of authorized shares of
common stock at the time that they were issued.
On April
2, 2009, using a Black-Scholes valuation model, we calculated a fair value for
the warrants issued with the April 2009 Notes of $20.8 million. On June 26,
2009, the date of the reverse stock split, we re-measured the warrants at a fair
value of $7.7 million, resulting in expense of $7.7 million.
The
warrants issued with the 2008 Notes were initially recorded at a fair value of
$7.6 million based upon a Black-Scholes valuation model. At September 30, 2008,
the fair value of the warrant liability was valued at $10.4 million, resulting
in expense of $2.8 million.
Net loss
Genta
recorded a net loss of $74.6 million, or net loss per basic and diluted share of
$0.98, for the nine months ended September 30, 2009 and incurred a net loss of
$535.4 million, or net loss per basic and diluted share of $748.55, for the nine
months ended September 30, 2008.
The lower
net loss for the nine months ended September 30, 2009 was primarily due to lower
expenses from marking to market the conversion feature liabilities of our notes.
In addition, the results reflect last year’s settlement of office lease
obligation, last year’s recognition of tesetaxel payments, higher share-based
compensation, reduced headcount and payroll expenses, higher amortization of
financing costs and debt discount and higher expense from marking to market our
warrant liabilities.
Liquidity
and Capital Resources
At
September 30, 2009, we had cash and cash equivalents totaling $7.4 million,
compared with $4.9 million at December 31, 2008, reflecting our April 2009
financing, July 2009 financing and September 2009 financing offset by funds used
in operating our company.
During
the first nine months of 2009, cash used in operating activities was $15.1
million compared with $22.0 million for the same period in 2008, reflecting the
reduced size of our company and our cost-control efforts.
Presently,
with no further financing, we project that we will run out of funds in the
second quarter of 2010. The terms of the April 2009 Notes enable those
noteholders, at their option, to purchase additional notes with similar terms.
We currently do not have any additional financing in place. If we are unable to
raise additional funds, we could be required to reduce our spending plans,
reduce our workforce, license one or more of our products or technologies that
we would otherwise seek to commercialize ourselves, or sell certain assets.
There can be no assurance that we can obtain financing, if at all, on terms
acceptable to us.
We will
require additional cash in order to maximize the commercial opportunity and
continue clinical development of our product candidates. Alternatives available
to us to sustain our operations include collaborative agreements, equity
financing, debt 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 to us on
favorable terms, if at all.
We
anticipate seeking additional product development opportunities through
potential acquisitions or investments. Such acquisitions or investments may
consume cash reserves or require additional cash or equity. Our working capital
and additional funding requirements will depend upon numerous factors,
including: (i) the progress of our research and development programs; (ii) the
timing and results of pre-clinical testing and clinical trials; (iii) the level
of resources that we devote to sales and marketing capabilities; (iv)
technological advances; (v) the activities of competitors; and (vi) our ability
to establish and maintain collaborative arrangements with others to fund certain
research and development efforts, to conduct clinical trials, to obtain
regulatory approvals and, if such approvals are obtained, to manufacture and
market products.
Critical
Accounting Policies and Estimates
Our
significant accounting policies are more fully described in Note 3 to our
consolidated financial statements. In preparing our financial statements in
accordance with accounting principles generally accepted in the United States of
America, management is required to make estimates and assumptions that, among
other things, affect the reported amounts of assets and liabilities and reported
amounts of revenues and expenses. These estimates are most significant in
connection with our critical accounting policies, namely those of our accounting
policies that are most important to the portrayal of our financial condition and
results and require management’s most difficult, subjective or complex
judgments. These judgments often result from the need to make estimates about
the effects of matters that are inherently uncertain. Actual results may differ
from those estimates under different assumptions or conditions. We believe that
the following represents our critical accounting policies:
|
·
|
Going
concern. Our
recurring losses from operations and negative cash flows from operations
raise substantial doubt about our ability to continue as a going concern
and as a result, our independent registered public accounting firm
included an explanatory paragraph in its report on our consolidated
financial statement for the year ended December 31, 2008 with respect to
this uncertainty. We have prepared our financial statements on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities and commitments in the normal course of
business. The financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts or
amounts of liabilities that might be necessary should we be unable to
continue in existence.
|
|
·
|
Revenue
recognition. We
recognize revenue from product sales when title to product and associated
risk of loss has passed to the customer and we are reasonably assured of
collecting payment for the sale. All revenue from product sales are
recorded net of applicable allowances for returns, rebates and other
applicable discounts and allowances. We allow return of our product for up
to twelve months after product
expiration.
|
|
·
|
Research and
development costs.
All such costs are expensed as incurred, including raw material costs
required to manufacture drugs for clinical
trials.
|
|
·
|
Estimate of
fair value of convertible notes and warrant. We use a Black-Scholes model to
estimate the fair value of our convertible notes and
warrant.
|
Results
of Operations for the Years Ended December 31, 2008, 2007 and 2006
|
|
Summary
Operating Results
|
|
|
|
For
the years ended December 31,
|
|
($
thousands)
|
|
|
|
|
|
|
|
|
|
|
$
Change
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
‘08 vs. ‘07
|
|
|
‘07 vs. ‘06
|
|
Product
sales - net
|
|
$
|
363
|
|
|
$
|
580
|
|
|
$
|
708
|
|
|
$
|
(217
|
)
|
|
$
|
(128
|
)
|
Cost
of goods sold
|
|
|
102
|
|
|
|
90
|
|
|
|
108
|
|
|
|
12
|
|
|
|
(18
|
)
|
Gross
margin
|
|
|
261
|
|
|
|
490
|
|
|
|
600
|
|
|
|
(229
|
)
|
|
|
(110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
19,991
|
|
|
|
13,491
|
|
|
|
28,064
|
|
|
|
6,500
|
|
|
|
(14,573
|
)
|
Selling,
general and administrative
|
|
|
10,452
|
|
|
|
16,865
|
|
|
|
25,152
|
|
|
|
(6,413
|
)
|
|
|
(8,287
|
)
|
Settlement
of office lease obligation
|
|
|
3,307
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,307
|
|
|
|
-
|
|
Provision
for settlement of litigation
|
|
|
(340
|
)
|
|
|
(4,240
|
)
|
|
|
5,280
|
|
|
|
3,900
|
|
|
|
(9,520
|
)
|
Write-off
of prepaid royalty
|
|
|
-
|
|
|
|
-
|
|
|
|
1,268
|
|
|
|
-
|
|
|
|
(1,268
|
)
|
Total
operating expenses
|
|
|
33,410
|
|
|
|
26,116
|
|
|
|
59,764
|
|
|
|
7,294
|
|
|
|
(33,648
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
(expense)/ income, net
|
|
|
(1,435
|
)
|
|
|
836
|
|
|
|
1,454
|
|
|
|
(2,271
|
)
|
|
|
(618
|
)
|
Amortization
of deferred financing costs and debt discount
|
|
|
(11,229
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(11,229
|
)
|
|
|
-
|
|
Fair
value – conversion feature liability
|
|
|
(460,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(460,000
|
)
|
|
|
-
|
|
Fair
value – warrant liability
|
|
|
(2,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,000
|
)
|
|
|
-
|
|
Loss
before income taxes
|
|
|
(507,813
|
)
|
|
|
(24,790
|
)
|
|
|
(57,710
|
)
|
|
|
(483,023
|
)
|
|
|
32,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit
|
|
|
1,975
|
|
|
|
1,470
|
|
|
|
929
|
|
|
|
505
|
|
|
|
541
|
|
Net
loss
|
|
$
|
(505,838
|
)
|
|
$
|
(23,320
|
)
|
|
$
|
(56,781
|
)
|
|
$
|
(482,518
|
)
|
|
$
|
33,461
|
|
Product sales -
net
Product
sales - net were $0.4 million in 2008 compared with $0.6 million in
2007. Product sales-net in 2008 included $25,000 of sales of Ganite® and in
2007 included $60,000 in sales of Genasense® through
the “named-patient” program managed for us by IDIS Limited (a privately owned
company based in the United Kingdom), whereby IDIS distributes Ganite® and
Genasense® on a
“named patient” basis. “Named patient” distribution refers to the distribution
or sale of a product to a specific healthcare professional for the treatment of
an individual patient. Unit sales of Ganite®
increased 2.7% in 2008, but reported product sales - net in 2008 include the
negative impact of returns of Ganite® due to
expired dating of product. Product sales-net in 2007 and 2006 included
favorable adjustments to a reserve for returns of Ganite® of $0.1
million and $0.3 million, respectively.
Cost of goods
sold
Cost of
goods sold increased in 2008 compared to the prior year due to higher unit sales
of Ganite®
and higher unit costs. Lower cost of goods sold in 2007 than
in 2006 is primarily the result of lower unit sales of Ganite®.
Research and development
expenses
Research
and development expenses were $20.0 million in 2008, compared with $13.5 million
in 2007. This increase was primarily due to the recognition of $2.5 million in
March 2008 for license payments on tesetaxel, $1.0 million in accrued milestone
payments related to tesetaxel, and higher expenses from the AGENDA clinical
trial. In addition, during the fourth quarter of 2007, we revised our estimate
of certain accrued expenses in the amount of $4.7 million, since such amount was
no longer deemed probable. These factors were partially offset by lower
compensation expense resulting from our workforce reductions in April 2008 and
May 2008.
Research
and development expenses incurred on the Genasense® project
in 2008 were approximately $15.0 million, representing 75% of research and
development expenses, (including the $2.5 million for license payments and $1.0
million in milestone payments related to tesetaxel).
Research
and development expenses were $13.5 million in 2007 compared with $28.1 million
in 2006. The prior year included higher manufacturing and other expenses
incurred in preparation for the possible commercial launch of Genasense® and
expenses related to regulatory review. The decline in expenses in 2007 reflects
the comparison to this higher level of expenses in 2006, as well as the impact
of a staff reduction in December 2006. Also, in 2007, we revised our estimate of
certain accrued expenses in the amount of $4.7 million, since such amount was no
longer deemed probable. Research and development expenses incurred on the
Genasense® project
in 2007 were approximately $10.3 million, representing 76% of research and
development expenses.
Due to
the significant risks and uncertainties inherent in the clinical development and
regulatory approval processes, the nature, timing and costs of the efforts
necessary to complete projects in development are subject to wide variability.
Results from clinical trials may not be favorable. Data from clinical trials are
subject to varying interpretation and may be deemed insufficient by the
regulatory bodies that review applications for marketing approvals. As such,
clinical development and regulatory programs are subject to risks and changes
that may significantly impact cost projections and timelines.
Selling, general and
administrative expenses
Selling,
general and administrative expenses were $10.5 million in 2008, compared with
$16.9 million in 2007. The decrease is primarily due to our efforts at lowering
administrative expenses, lower office rent of $1.1 million and lower
compensation expense resulting from our workforce reductions in April 2008 and
May 2008.
Selling,
general and administrative expenses were $16.9 million in 2007, compared with
$25.2 million in 2006. The prior year included a buildup of sales and marketing
expenses incurred in preparation for a possible commercial launch of
Genasense®. The
decline in expenses in 2007 reflects the comparison to this higher level of
expenses in 2006, as well as the impact of our December 2006 staff reduction. In
addition, depreciation expense declined by $0.8 million and share-based
compensation declined by $1.1 million.
Settlement of office lease
obligation
In May
2008, we entered into an amendment of our lease for office space with The
Connell Company, (Connell) whereby the lease for one floor of our office space
in Berkeley Heights, New Jersey was terminated. Connell received a termination
payment of $1.3 million, comprised solely of our security deposits and we agreed
to pay Connell $2.0 million upon the earlier of July 1, 2009 or our receipt of
at least $5.0 million in upfront cash from a business development deal. In
January 2009, we entered into another amendment of our agreement with Connell
whereby our future payment of $2.0 million is now payable on January 1, 2011. We
accrued for the $2.0 million and it is included on our Consolidated Balance
Sheets. We will pay 6.0% interest in arrears to Connell from July 1, 2009
through the new payment date. The initial interest payment of approximately
$30,000 will be payable as of October 1, 2009.
Provision for settlement of
litigation
In 2006,
we recorded an expense of $5.3 million that provided for the issuance of 40,000
shares of our common stock, for a settlement in principle of class action
litigation. At December 31, 2007, the revised estimated value of the common
shares portion of the litigation settlement was $1.0 million, resulting in a
reduction in the liability for the settlement of litigation of $4.2 million. On
June 27, 2008, the date that the settlement was finalized, the revised value of
the 40,000 shares was $0.7 million, resulting in a reduction in the liability
for the settlement of litigation of $0.3 million. See Note 6 to our Consolidated
Financial Statements for the year ended December 31, 2008 for a further
discussion of this provision.
Write-off of prepaid
royalty
In
December 2000, we recorded $1.3 million as the fair value for our commitment to
issue 27,056 shares (not adjusted for 1-for-50 reverse stock split) of common
stock to a major university as consideration for an amendment to a license
agreement initially executed on August 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 our products containing the antisense technology licensed from such
university. These shares were issued in 2001. In December 2006, we received a
non-approvable notice from the FDA for our NDA for the use of Genasense® plus
chemotherapy in patients with CLL. As a result, we accounted for the impairment
of these prepaid royalties and recorded a write-off of this asset, (see Note 8
to our Financial Statements).
Gain on maturity of
marketable securities
Interest income and other
income, net
Interest
expense
The total
of the above referenced accounts resulted in expense, net of $(1.4) million in
2008 and income, net of $0.8 million in 2007. This decline was primarily due to
interest incurred on the convertible notes, as well as lower interest income,
resulting from lower investment balances. Other income, net of $0.8 million in
2007 declined from $1.5 million in 2006, primarily due to lower interest income,
resulting from lower investment balances, along with higher interest
expense.
Amortization of deferred
financing costs and debt discount
On June
9, 2008, we issued $20 million of our senior secured convertible notes, issued
our private placement agent a warrant to purchase 800,000 shares of our common
stock at an exercise price of $1.00 per share and incurred a financing fee of
$1.2 million. The deferred financing costs, including the financing fee and the
value of the warrant, are being amortized over the two-year term of the
convertible notes, resulting in amortization of $11.2 million in
2008.
Fair value – conversion
feature liability
On the
date that we issued the convertible notes, there were an insufficient number of
authorized shares of common stock in order to permit conversion of all of the
notes. In accordance with EITF 00-19, “Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” (EITF
00-19), when there are insufficient authorized shares to allow for settlement of
convertible financial instruments, the conversion obligation for the notes
should be classified as a liability and measured at fair value on the balance
sheet.
On June
9, 2008, based upon a Black-Scholes valuation model that included a closing
price of our common stock of $10.00 per share, we calculated a fair value of the
conversion feature of $380.0 million and expensed $360.0 million, the amount
that exceeded the proceeds of the $20.0 million from the initial closing. On
October 6, 2008, the date on which our stockholders approved an amendment to
Genta’s Restated Certificate of Incorporation, as amended, to increase the total
number of authorized shares of capital stock available for issuance, we
re-measured the conversion feature liability and credited it to Stockholders’
equity, resulting in total expense for the year ended December 31, 2008 of
$460.0 million.
Fair value – warrant
liability
The
warrant was also treated as a liability and was initially recorded at a fair
value of $7.6 million based upon a Black-Scholes valuation model that included a
closing price of our common stock of $10.00 per share. On October 6, 2008, we
re-measured the warrant liability and credited it to Stockholders’ equity,
resulting in total expense for the year ended December 31, 2008 of $2.0
million.
Income tax
benefit
New
Jersey has legislation permitting certain corporations located in the state to
sell state tax loss carryforwards and state research and development credits. We
sold portions of our New Jersey net operating losses research and development
credits and received approximate payments of $2.0 million in 2008, $1.5 million
in 2007 and $0.9 million in 2006 that are recognized as income tax
benefit.
If still
available under New Jersey law, we will attempt to sell our remaining tax losses
in 2009. We can not be assured that the New Jersey program will continue next
year, nor can we estimate what percentage of our saleable tax benefits New
Jersey will permit us to sell, how much money will be received in connection
with the sale, if we will be able to find a buyer for our tax benefits or if
such funds will be available in a timely manner.
Net loss
Genta
incurred a net loss of $505.8 million, or $455.09 per share, for 2008, $23.3
million, or $39.36 per share, for 2007 and $56.8 million, or $125.88 per share,
for 2006.
The
larger net loss in 2008 compared to 2007 is primarily due to the fair value
charge of the conversion feature liability of $460.0 million, the amortization
of deferred financing costs and debt discount of $11.2 million, the expenses
resulting from the reduction in our office space of $3.3 million, the fair value
charge of the warrant liability of $2.0 million, the recognition of $2.5 million
in March 2008 for license payments on tesetaxel, $1.0 million in accrued
milestone payments related to tesetaxel and higher expenses resulting from the
AGENDA clinical trial, slightly offset by lower compensation expense resulting
from the two reductions in workforce, as well as lower administrative
expenses.
The lower
net loss in 2007 compared to 2006 is primarily due to a comparison with a prior
year that reflected a buildup of sales, marketing and manufacturing expenses
incurred in anticipation of a possible commercial launch of Genasense®. In
addition, the lower loss in 2007 reflects our staff reduction in December 2006,
lower share-based compensation expense, lower depreciation expense and includes
a benefit of $4.2 million due to a reduction in the provision for settlement of
litigation.
Critical
Accounting Policies
Our
significant accounting policies are more fully described in Note 1 to our
consolidated financial statements. In preparing our financial statements in
accordance with accounting principles generally accepted in the United States of
America, management is required to make estimates and assumptions that, among
other things, affect the reported amounts of assets and liabilities and reported
amounts of revenues and expenses. These estimates are most significant in
connection with our critical accounting policies, namely those of our accounting
policies that are most important to the portrayal of our financial condition and
results and require management’s most difficult, subjective or complex
judgments. These judgments often result from the need to make estimates about
the effects of matters that are inherently uncertain. Actual results may differ
from those estimates under different assumptions or conditions. We believe that
the following represents our critical accounting policies:
|
·
|
Going concern. Our
recurring losses from operations and negative cash flows from operations
raise substantial doubt about our ability to continue as a going concern
and as a result, our independent registered public accounting firms
included an explanatory paragraph in their reports on our consolidated
financial statements for the years ended December 31, 2008 and December
31, 2007 with respect to this uncertainty. We have prepared our financial
statements on a going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities and commitments in the normal
course of business. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded
asset amounts or amounts of liabilities that might be necessary should we
be unable to continue in existence.
|
|
·
|
Revenue recognition. We
recognize revenue from product sales when title to product and associated
risk of loss has passed to the customer and we are reasonably assured of
collecting payment for the sale. All revenue from product sales are
recorded net of applicable allowances for returns, rebates and other
applicable discounts and allowances. We allow return of our product for up
to twelve months after product
expiration.
|
|
·
|
Research and development
costs. All such costs are expensed as incurred, including raw
material costs required to manufacture drugs for clinical
trials.
|
|
·
|
Estimate of fair value of
convertible notes and warrant. We use a Black-Scholes model to
estimate the fair value of our convertible notes and
warrant.
|
Liquidity
and Capital Resources
At
December 31, 2008, we had cash, cash equivalents and marketable securities
totaling $4.9 million, compared with $7.8 million at December 31, 2007,
reflecting the net proceeds from the placement of $20 million of notes on June
9, 2008 offset by funds used in operating our company. During 2008, cash used in
operating activities was $25.7 million compared with $31.7 million in 2007,
reflecting our efforts to lower our spending.
On June
9, 2008, we issued 2-year senior convertible promissory notes bearing interest
at an annual rate of 15%, payable at quarterly intervals in stock or cash at our
option and the notes are convertible into shares of Genta common stock at a
conversion rate of 10,000 shares of common stock for every $1,000.00 of
principal. Holders of the notes have the right, but not the obligation, for the
following 12 months following the initial closing date to purchase in whole, or
in part, up to an additional $20 million of the notes. We have the right to
force conversion of the notes in whole, or in part, if the closing bid price of
our common stock exceeds $0.50 for a period of 20 consecutive trading days.
Certain members of our senior management participated in this offering. The
notes are secured by a first lien on all of our assets. In addition, the notes
prohibit any additional financing without the approval of holders of more than
two-thirds of the principal amount of the notes.
The notes
included certain events of default, including a requirement that we obtain
stockholder approval within a specified period of time to amend our certificate
of incorporation to authorize additional shares of common stock. On October 6,
2008, at the Annual Meeting of Stockholders, our stockholders approved an
amendment to Genta’s Restated Certificate of Incorporation, as amended, to
increase the total number of authorized shares of capital stock available for
issuance from 255,000,000, consisting of 250,000,000 shares of Common Stock and
5,000,000 shares of Preferred Stock, to 6,005,000,000, consisting of
6,000,000,000 shares of Common Stock and 5,000,000 shares of Preferred
Stock.
In
accordance with the terms of the notes, we elected to pay interest due on the
notes on December 9, 2008 in shares of our common stock to all noteholders where
the issuance of the shares would not cause the noteholder to beneficially own
more than 4.999% of our outstanding common stock. Accordingly, on December 9,
2008, we issued 80,000 shares and $0.1 million to satisfy our interest
payment.
Through
December 31, 2008, our noteholders have voluntarily converted approximately $4.5
million of our convertible notes, resulting in us issuing 8.9 million shares of
common stock. From January 1, 2009 through February 4, 2009, holders
of convertible notes have voluntarily converted approximately $4.6 million of
their notes, resulting in an issuance of 9.2 million shares of common
stock.
Upon the
occurrence of an event of default, holders of the notes have the right to
require us to prepay all, or a portion, of their notes as calculated as the
greater of (a) 150% of the aggregate principal amount of the note plus accrued
interest or (b) the aggregate principal amount of the note plus accrued interest
divided by the conversion price; multiplied by a weighted average price of our
common stock. Pursuant to a general security agreement, entered into
concurrently with the notes, the notes are secured by a first lien on all of our
assets.
In
February 2008, the Company sold 0.1 million shares of the Company’s common stock
at a price of $25.00 per share, raising approximately $3.1 million, before
estimated fees and expenses.
Effective
May 7, 2008, we moved the trading of our common stock from The NASDAQ Capital
Markets to the Over-the-Counter Bulletin Board (OTCBB) maintained by FINRA
(formerly, the NASD). This action was taken pursuant to receipt of notification
from the NASDAQ Listing Qualifications Panel that we had failed to demonstrate
our ability to sustain compliance with the $2.5 million minimum stockholders’
equity requirement for continued listing on The NASDAQ Capital Markets. On July
10, 2008, we received notification from The NASDAQ Capital Market that The
NASDAQ Capital Market had determined to remove our common stock from listing on
such exchange. The delisting was effective at the opening of the
trading session on July 21, 2008.
In March
2007, we sold 0.1 million shares of our common stock at a price of $108.00 per
share, raising net proceeds of $10.2 million.
During
2007, the Company issued notes payable to finance premiums for its corporate
insurance policies of $1.1 million at interest rates running from 5.2% to 5.9%.
Payments were scheduled for seven or ten equal monthly installments for the
notes initiated in 2007. The remaining balance on the notes payable was $0.5
million at December 31, 2007, which was then fully paid off during
2008.
Presently,
with no further financing, we project that we will run out of funds in January
2010. If we are unable to raise additional financing, we could be
required to reduce our spending plans, reduce our workforce, license to others
products or technologies we would otherwise seek to commercialize ourselves and
sell certain assets. There can be no assurance that we can obtain financing, if
at all, on terms acceptable to us.
Irrespective
of whether an NDA or MAA for Genasense® are
approved, we will require additional cash in order to maximize this commercial
opportunity and continue its clinical development opportunities. We have had
discussions with other companies regarding partnerships for the further
development and global commercialization of Genasense®.
Additional alternatives available to us to sustain our operations include
financing arrangements with potential corporate partners, debt financing,
asset-based loans, royalty-based financing, equity financing 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.
We
anticipate seeking additional product development opportunities through
potential acquisitions or investments. Such acquisitions or investments may
consume cash reserves or require additional cash or equity. Our working capital
and additional funding requirements will depend upon numerous factors,
including: (i) the progress of our research and development programs; (ii) the
timing and results of pre-clinical testing and clinical trials; (iii) the level
of resources that we devote to sales and marketing capabilities; (iv)
technological advances; (v) the activities of competitors; (vi) our ability to
establish and maintain collaborative arrangements with others to fund certain
research and development efforts, to conduct clinical trials, to obtain
regulatory approvals and, if such approvals are obtained, to manufacture and
market products and (vii) legal costs and the outcome of outstanding legal
proceedings.
Contractual
Obligations
Future
contractual obligations at December 31, 2008 are as follows ($
thousands):
|
|
Total
|
|
|
Less than
1 year
|
|
|
1 - 3 years
|
|
|
3 - 5 years
|
|
|
More than
5 years
|
|
Uncertain
tax positions*
|
|
$
|
841
|
|
|
$
|
841
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Operating
lease obligations
|
|
|
2,859
|
|
|
|
706
|
|
|
|
2,153
|
|
|
|
0
|
|
|
|
0
|
|
Maturity
of convertible notes
|
|
|
15,540
|
|
|
|
0
|
|
|
|
15,540
|
|
|
|
0
|
|
|
|
0
|
|
License
obligations to Daiichi Sankyo
|
|
|
2,125
|
|
|
|
2,125
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Total
|
|
$
|
21,365
|
|
|
$
|
3,672
|
|
|
$
|
17,693
|
|
|
$
|
0
|
|
|
$
|
0
|
|
* see
Note 13 to the Consolidated Financial Statements
Virtually
all of the operating lease obligations result from our lease of approximately
25,000 square feet of office space in Berkeley Heights, New Jersey. Our lease on
this space terminates in 2010. In May 2008, we entered into an amendment of our
lease agreement with The Connell Company, (Connell) whereby the lease for one
floor of our office space was terminated. We agreed to pay Connell a payment of
$2.0 million upon the earlier of July 1, 2009 or our receipt of at least $5.0
million in upfront cash from a business development deal. In February 2009, we
entered into another amendment of our agreement with Connell whereby our future
payment of $2.0 million is now payable on January 1, 2011. We will pay 6.0%
interest in arrears to Connell from July 1, 2009 through the new payment date.
The initial interest payment of approximately $30,000 will be payable as of
October 1, 2009.
On June
9, 2008, we issued senior convertible promissory notes maturing on June 9, 2010,
(see Note 12 to the Consolidated Financial Statements). Holders of the notes
have the right, but not the obligation, to convert their notes, or a portion of
their notes, in to shares of Genta common stock at a present conversion rate of
10,000 shares of common stock for every $1,000 of principal. The amount in the
table above, $15.5 million, is the face value of convertible notes outstanding
at December 31, 2008. This amount would be due on June 9, 2010 assuming no
voluntary conversions by noteholders prior to the maturity date. As
of February 4, 2009, the amount is $10.9 million.
On March
7, 2008, we entered into a license agreement with Daiichi Sankyo Company,
Limited, a Japanese corporation based in Tokyo, Japan, whereby we obtained the
exclusive license for tesetaxel. Pursuant to the agreement, as of December 31,
2008, we owe Daiichi Sankyo two installments of $562,000 and an earned milestone
payment of $1.0 million. The agreement also provides for additional payments by
us upon achievement of certain clinical and regulatory milestones and royalties
on net product sales. The agreement provides provisions whereby failure to make
timely payments to Daiichi Sankyo may provide grounds for termination of the
agreement.
Not
included in the above table are any Genasense® bulk
drug purchase obligations to Avecia per the terms of the Manufacturing and
Supply Agreement entered into between Avecia and Genta in May 2008. The
agreement calls for Genta to purchase a percentage of its global Genasense® bulk
drug requirements from Avecia during the term of the agreement. Due to the
uncertainties regarding the timing of any Genasense® approval
and sales/volume projections, specific obligation amounts cannot be estimated at
this time. Due to past purchases of Genasense® bulk
drug substance, the Company has access to sufficient drug for its current needs.
In addition, not included in the above table are potential milestone payments to
be made to Emisphere and other suppliers of services, since such payments are
contingent on the occurrence of certain events.
CHANGE
IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
On July
16, 2008, following an extensive review and request-for-proposal process, our
Audit Committee determined not to renew our engagement of Deloitte & Touche
LLP as our independent registered public accounting firm and dismissed them as
our auditors. On July 16, 2008, the Audit Committee recommended and approved the
appointment of Amper, Politziner & Mattia, LLP as our auditors
for the fiscal year ending December 31, 2008, commencing immediately on such
date.
No
accountant’s report issued by Deloitte & Touche LLP on the financial
statements for either of the two (2) fiscal years ended December 31, 2007 and
December 31, 2006 contained an adverse opinion or a disclaimer of opinion, or
was qualified or modified as to uncertainty, audit scope or accounting
principles, except that Deloitte & Touche LLP’s report on our consolidated
financial statements as of and for the year ended December 31, 2007 contained an
explanatory paragraph expressing substantial doubt as to our ability to continue
as a going concern as a result of recurring losses and negative cash flows from
operations.
During
each of the fiscal years ended December 31, 2007 and December 31, 2006 and the
subsequent interim period from January 1, 2008 through our notice to Deloitte
& Touche LLP of its non-renewal on July 16, 2008: (i) there were no
disagreements with Deloitte & Touche LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope of
procedure, which disagreement, if not resolved to the satisfaction of Deloitte
& Touche LLP, would have caused it to make reference to the subject matter
of the disagreement in connection with its reports; and (ii) there were no
“reportable events” (as defined in Item 304(a)(1)(v) of Regulation S-K). In
addition, Deloitte & Touche LLP’s reports on our financial statements for
the past two years did not contain an adverse opinion or a disclaimer of
opinion, nor were such reports qualified or modified as to uncertainty, audit
scope or accounting principles. Deloitte & Touche LLP’s reports on our
financial statements did include an explanatory paragraph relating to our
ability to continue as a going concern and our adoption of Statement of
Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment,
effective January 1, 2006, and Financial Accounting Standards Board
Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an
Interpretation of FASB Statement no. 109, effective January 1,
2007.
During
our fiscal years ended December 31, 2006 and December 31, 2007 and the
subsequent interim period from January 1, 2008 through the engagement of Amper,
Politziner & Mattia, LLP on July 16, 2008, we did not consult with Amper,
Politziner & Mattia, LLP regarding the application of accounting principles
to a specified transaction, either completed or proposed; the type of audit
opinion that might be rendered on our consolidated financial statements, or any
matter that was either the subject of disagreement, as that term is defined in
Item 304(a)(1)(iv) of Regulation S-K; or a reportable event, as that term is
defined in Item 304(a)(1)(v) of Regulation S-K.
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our
carrying values of cash, marketable securities, accounts payable, accrued
expenses and debt are a reasonable approximation of their fair value. If our
stock price were to increase, the Black Scholes model will calculate a higher
estimate of the fair value of our convertible notes and warrant. If our stock
price were to decrease, the Black Sholes model will calculate lower values. The
estimated fair values of financial instruments have been determined by us using
available market information and appropriate valuation methodologies (See Note 1
to our Consolidated Financial Statements for the Years Ended December 31, 2008,
2007 and 2006). We have not entered into and do not expect to enter into,
financial instruments for trading or hedging purposes. We do not currently
anticipate entering into interest rate swaps and/or similar
instruments.
Our
primary market risk exposure with regard to financial instruments is to changes
in interest rates, which would impact interest income earned on such
instruments. We have no material currency exchange or interest rate risk
exposure as of December 31, 2008. Therefore, there will be no ongoing exposure
to a potential material adverse effect on our business, financial condition or
results of operation for sensitivity to changes in interest rates or to changes
in currency exchange rates.
MANAGEMENT
Our
Directors and executive officers, their age, positions, the dates of their
initial election or appointment as Directors or executive officers, and the
expiration of the terms are as follows:
Name
|
|
Age
|
|
Position With The
Company
|
Raymond
P. Warrell, Jr., M.D.
|
|
60
|
|
Chairman
and Chief Executive Officer
|
Gary
Siegel
|
|
51
|
|
Vice
President, Finance
|
Loretta
M. Itri, M.D., F.A.C.P.
|
|
60
|
|
President
Pharmaceutical Development and Chief Medical Officer
|
W.
Lloyd Sanders
|
|
48
|
|
Sr.
Vice President and Chief Operating Officer
|
Christopher
P. Parios
|
|
68
|
|
Director
|
Daniel
D. Von Hoff, M.D.
|
|
61
|
|
Director
|
Douglass
G. Watson
|
|
64
|
|
Director
|
All
directors hold office until the annual meeting next following their election
and/or until their successors are elected and qualified. Officers are elected
annually by the Board of Directors (the “Board”) and serve at the discretion of
the Board. Information with respect to the business expenses and affiliation of
our directors and executive officers is set forth below:
Raymond P.
Warrell, Jr., M.D., 60, has been our Chief Executive Officer and a member
of our Board since December 1999 and our Chairman since January 2001. From
December 1999 to May 2003, he was also our President. From 1978 to 1999, Dr.
Warrell was associated with the Memorial Sloan-Kettering Cancer Center in New
York, where he held tenured positions as Member, Attending Physician, and
Associate Physician-in-Chief, and with the Joan and Sanford Weill Medical
College of Cornell University, where he was Professor of Medicine. Dr. Warrell
also has more than 20 years of development and consulting experience in
pharmaceuticals and biotechnology products. He was a co-founder and chairman of
the scientific advisory board of PolaRx Biopharmaceuticals, Inc., which
developed Trisenox®, a drug for the treatment of acute promyelocytic leukemia,
which is now marketed by Cephalon, Inc. Dr. Warrell holds or has filed numerous
patents and patent applications for biomedical therapeutic or diagnostic agents.
He has published more than 100 peer-reviewed papers and more than 240 book
chapters and abstracts, most of which are focused upon drug development in
tumor-related diseases. Dr. Warrell is a member of the American Society of
Clinical Investigation, the American Society of Hematology, the American
Association for Cancer Research and the American Society of Clinical Oncology.
Among many awards, he has received the U.S. Public Health Service Award for
Exceptional Achievement in Orphan Drug Development from the FDA. He obtained a
B.S. in Chemistry from Emory University, a M.D. from the Medical College of
Georgia, and a M.B.A. from Columbia University Graduate School of Business. Dr.
Warrell is married to Dr. Loretta M. Itri, President, Pharmaceutical Development
and Chief Medical Officer of Genta.
Gary
Siegel, 51, joined Genta in May 2003 as Director, Financial Services, was
appointed Senior Director, Financial Services in April 2004 and was appointed
Vice President, Finance in September 2007. During his tenure at Genta, Mr.
Siegel has been accountable for the day-to-day accounting and financial
operations of the Company including public and management reporting, treasury
operations, planning, financial controls and compliance. Mr. Siegel became an
executive officer of the Company and assumed the role of interim Principal
Accounting Officer, interim Principal Financial Officer and interim Corporate
Secretary, effective February 29, 2008. Prior to joining Genta, he worked for
two years at Geller & Company, a private consulting firm, where he led the
management reporting for a multi-billion dollar client. His twenty-two years of
experience in the pharmaceutical industry include leadership roles at
Warner-Lambert Company and Pfizer Inc., where he held positions of progressively
increasing levels of responsibility including Director, Corporate Finance and
Director, Financial Planning & Reporting.
Loretta M. Itri,
M.D., F.A.C.P., 60, has been our President, Pharmaceutical Development
and Chief Medical Officer since May 2003, prior to which she was Executive Vice
President, Pharmaceutical Research and Development and Chief Medical Officer.
Dr. Itri joined Genta in March 2001. Previously, Dr. Itri was Senior Vice
President, Worldwide Clinical Affairs, and Chief Medical Officer at Ortho
Biotech Inc., a Johnson & Johnson company. As the senior clinical leader at
Ortho Biotech and previously at J&J’s R.W. Johnson Pharmaceutical Research
Institute (PRI), she led the clinical teams responsible for NDA approvals for
Procrit® (epoetin alpha), that company’s largest single product. She had similar
leadership responsibilities for the approvals of Leustatin®, Renova®, Topamax®,
Levaquin®, and Ultram®. Prior to joining J&J, Dr. Itri was associated with
Hoffmann-La Roche, most recently as Assistant Vice President and Senior Director
of Clinical Investigations, where she was responsible for all phases of clinical
development programs in immunology, infectious diseases, antivirals, AIDS,
hematology and oncology. Under her leadership in the areas of recombinant
proteins, cytotoxic drugs and differentiation agents, the first successful
Product License Application (PLA) for any interferon product (Roferon-A®;
interferon alfa) was compiled. Dr. Itri is married to Dr. Warrell, our Chief
Executive Officer and Chairman.
W. Lloyd
Sanders, 48, assumed the position of Senior Vice President and Chief
Operating Officer in March 2008. He had been our Senior Vice President,
Commercial Operations since October 2006. Mr. Sanders joined Genta in January
2006 as Vice President, Sales and Marketing. He has twenty years of experience
in the pharmaceutical industry. Prior to joining Genta, Mr. Sanders was
associated with Sanofi-Synthelabo, and subsequently Sanofi-Aventis. From October
2004 through January 2006 he was Vice-President, Oncology Sales for the combined
companies. In that role, he had key product sales responsibility for Eloxatin®
(oxaliplatin), Taxotere® (docetaxel), Anzemet® (dolasetron mesylate), and
ELITEK® (rasburicase). He led the successful restructuring, integration,
deployment, strategic development, and tactical execution of the merged
companies’ sales forces. He was responsible for national account GPO contracting
strategy and negotiations, and he shared responsibility for oncology sales
training and sales operations. From October 2002 through October 2004, Mr.
Sanders was Area Vice President, Oncology Sales. He led the 110-member team that
achieved record sales for an oncology product launch with Eloxatin®. From 1987
until 2002, he held positions of progressively increasing levels of
responsibility at Pharmacia, Inc. (now Pfizer), most recently as Oncology Sales
Director, West/East. Mr. Sanders holds a Bachelor of Business Administration
from Memphis State University.
Christopher P.
Parios, 68, has been a member of our Board since September 2005. Mr.
Parios has more than thirty-seven years of pharmaceutical industry experience,
including product development, marketing and promotion, strategy and tactic
development, and managing pharmaco-economic and reimbursement issues. He has
worked with many of the major companies in the pharmaceutical industry including
Hoffmann-LaRoche, Ortho-McNeil, Pfizer, Novartis, Schering Plough, Janssen,
Ortho Biotech, and Bristol-Myers Squibb. For the period 1997 to May of 2008, Mr.
Parios was Executive Director of The Dominion Group, an independent healthcare
consulting firm that specializes in market research, strategic planning, and
competitive intelligence monitoring. In this role, he was responsible for the
full range of market research, consulting, and business planning activities to
facilitate informed business decisions for clients regarding product
development, acquisitions, product positioning, and promotion. Mr. Parios
continues to consult with the Dominion Group on a part-time basis. Previously,
Mr. Parios was President and Chief Operating Officer of the Ferguson
Communication Group, as well as Vice Chairman of the parent company,
CommonHealth USA, a leading full-service communications resource for the
healthcare industry. Mr. Parios was a partner in Pracon, Inc., a health-care
marketing consulting firm from 1982 to 1991, and helped engineer the sale of
that firm to Reed-Elsevier in 1989. Over a twenty-year period, Mr. Parios held
progressively senior positions at Hoffmann-LaRoche, Inc., most recently as
Director of New Product Planning and Regulatory Affairs Management. This group
established the project management system for drug development at Roche and
coordinated developmental activities for such products as Versed®, Rocephin®,
Roferon®, Accutane®, Rimadyl®, and Tegison®. Mr. Parios was also a member of the
corporate team responsible for domestic and international product and technology
licensing activities.
Daniel D. Von
Hoff, M.D., F.A.C.P., 61, has been a member of our Board since January
2000. Since November 2002, he has been Physician in Chief and Director of
Translational Research at Translational Genomics Research Institute’s (Tgen) in
Phoenix, Arizona. He is also Chief Scientific Officer for US Oncology since
January 2003 and he is also the Chief Scientific Officer, Scottsdale Clinical
Research Institute since November 2005. Dr. Von Hoff’s major interest is in the
development of new anticancer agents, both in the clinic and in the laboratory.
He and his colleagues were involved in the beginning of the development of many
of the agents now used routinely, including: mitoxantrone, fludarabine,
paclitaxel, docetaxel, gemcitabine, CPT-11, and others. At present, he and his
colleagues are concentrating on the development of molecularly targeted
therapies. Dr. Von Hoff’s laboratory interests and contributions have been in
the area of in vitro drug sensitivity testing to individualize treatment for the
patient. He and his laboratory are now concentrating on discovery of new targets
in pancreatic cancer. Dr. Von Hoff has published more than 531 papers, 129 book
chapters, and more than 891 abstracts. Dr. Von Hoff was appointed to President
Bush’s National Cancer Advisory Board for June 2004 — March 2010. Dr. Von Hoff
is the past President of the American Association for Cancer Research, a Fellow
of the American College of Physicians, and a member and past board member of the
American Society of Clinical Oncology. He is a founder of ILEX™ Oncology, Inc.
(acquired by Genzyme). He is founder and the Editor Emeritus of Investigational New
Drugs — The
Journal of New Anticancer Agents; and, Editor-in-Chief of Molecular Cancer
Therapeutics.
Douglas G.
Watson, 64, has been a member of our Board since April 2002 and was
appointed Vice Chairman of our Board and Lead Director in March 2005. From 1999
through the present, Mr. Watson is the founder and has served as Chief Executive
Officer of Pittencrieff Glen Associates, a leadership and management-consulting
firm. Prior to taking early retirement in 1999, Mr. Watson spent 33 years with
Geigy/Ciba-Geigy/Novartis, during which time he held a variety of positions in
the United Kingdom, Switzerland and the United States. From 1986 to 1996, he was
President of Ciba U.S. Pharmaceuticals Division, and in 1996 he was appointed
President & Chief Executive Officer of Ciba-Geigy Corporation. During this
ten-year period, Mr. Watson was an active member of the Pharmaceutical Research
& Manufacturers Association board in Washington, DC. Mr. Watson became
President & Chief Executive Officer of Novartis Corporation in 1997 when the
merger of Ciba-Geigy & Sandoz was approved by the Federal Trade Commission.
Mr. Watson is currently Chairman of the Board of OraSure Technologies Inc., and
Chairman of the Board of Javelin Pharmaceuticals Inc. He also serves on the
boards of Dendreon Corporation and BioMimetic Therapeutics Inc.
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
Overview
of Compensation Program
The
Compensation Committee, also referred to herein as the Committee, of the Board
of Directors has responsibility for overseeing our compensation and benefit
policies, evaluating senior executive performance, and determining compensation
for our senior executives, including our executive officers. The Committee
ensures that the total compensation paid to executive officers is fair,
reasonable and competitive.
The
individuals who serve as our Chairman of the Board and Chief Executive Officer
(CEO), and the Chief Financial Officer (CFO), as well as the other individuals
included in the Summary Compensation Table below, are referred to as the
“executive officers”.
Compensation
Philosophy and Objectives
Our
compensation philosophy is based on our belief that our compensation programs
should: be aligned with stockholder’s interests and business objectives; reward
performance; and be externally competitive and internally equitable. We seek to
achieve three objectives, which serve as guidelines in making compensation
decisions:
|
•
|
Providing
a total compensation package which is competitive and therefore, enables
us to attract and retain, high-caliber executive
personnel;
|
|
•
|
Integrating
compensation programs with our short-term and long-term strategic plan and
business objectives; and
|
|
•
|
Encouraging
achievement of business objectives and enhancement of stockholder value by
providing executive management long-term incentive through equity
ownership.
|
Role
of Executive Officers in the Compensation Decisions
The
Committee makes all compensation decisions regarding the compensation of our
executive officers. The CEO reviews the performance of our executive officers
and except for the President, Pharmaceutical Development & Chief Medical
Officer (President), who is the spouse of the CEO, the CEO makes recommendations
to the Committee based on these reviews, including salary adjustments, variable
cash awards and equity awards. The Committee can exercise its discretion in
modifying any recommended adjustments or awards to executives. With respect to
the President, the Committee in its sole discretion determines the amount of any
adjustments or awards.
Establishing
Executive Compensation
Compensation
levels for our executive officers are determined through comparisons with other
companies in the biotechnology and pharmaceutical industries, including
companies with which we compete for personnel. To determine external
competitiveness practices relevant to the executive officers, we review data
from two industry surveys of executive compensation: Radford Biotechnology
Compensation Survey and Organization Resources Counselors (collectively,
External Market Data). In addition, in 2007 the Committee retained Towers
Perrin, a leading compensation consultant with expertise in biopharmaceutical
industry compensation practices, to assist in its analysis of executive
compensation. Towers Perrin provided a third-party perspective based on their
extensive knowledge of the industry and they advised the Committee of
developments in the design of compensation programs and provided benchmarks
against which we compare our total compensation packages. Towers Perrin
conducted a peer group analysis in order to weigh the competitiveness of the
Company’s overall compensation arrangements in relation to comparable
biopharmaceutical companies. The peer companies were: Allos Therapeutics, Ariad
Pharmaceuticals, Avalon Pharmaceuticals, Cell Genesys, Cell Therapeutics,
Favrille, Hana Biosciences, Introgen Therapeutics, NeoPharm, Pharmacyclics,
Poniard Pharmaceuticals, Spectrum Pharmaceuticals, Telik and Vion
Pharmaceuticals. These companies were selected for the peer group because, like
Genta, they were oncology focused, public pharmaceutical companies with products
in mid to late-stage development.
In 2008,
the Committee retained Aon Radford Consulting (a nationally recognized
compensation consulting firm with specific expertise in dealing with the equity
issues of biopharmaceutical companies) to conduct a review of market trends
related to equity compensation in consideration of the fact that the Company’s
1998 Plan would be expiring in May 2008. The peer group companies
used for that analysis were: Access Pharmaceuticals, Inc., AMDL, Inc., Celsion
Corp., Idera Pharmaceuticals, Inc., Infinity Pharmaceuticals, Inc., Opexa
Therapeutics, Inc., Oscient Pharmaceuticals Corp., Poniard Pharmaceuticals,
Inc., SEQUENOM, Inc. and Targeted Genetics Corp. These companies were selected
because, like Genta, they were oncology focused, public pharmaceutical companies
with products in mid to late-stage development.
It is the
Committee’s objective to target total annual compensation of each executive
officer at a level between the 50th and 75th percentiles for comparable
positions. However, in determining the compensation for each executive officer,
the Committee also considers a number of other factors including: an evaluation
of the responsibilities required for each respective position, individual
experience levels and individual performance and contributions toward
achievement of our business objectives. There is no pre-established policy or
target for the allocation between either cash and non-cash or short-term and
long-term incentive compensation. Instead, the Committee determines the mix of
compensation for each executive officer based on its review of the competitive
data and its analysis of that individual’s performance and contribution to our
performance. In addition, in light of our stage of development, considerable
emphasis is placed on equity-based compensation in an effort to preserve cash to
finance our research and development efforts.
Other Factors
Considered in Establishing 2008 Compensation for Executive Officers
Our
potential products are in various stages of research and development and limited
revenues have as yet been generated from product sales. As a result, the use of
traditional performance standards, such as corporate profitability, is not
believed to be appropriate in the evaluation of the performance of us or our
individual executives. The compensation of our executive officers is based, in
substantial part, on industry compensation practices, trends noted (in the
External Market Data, peer group analysis and by Towers Perrin), as well as the
extent to which business and the individual executive officers’ objectives are
achieved. Such objectives are established and modified as necessary to reflect
changes in market conditions and other factors. Individual performance is
measured by reviewing whether these objectives have been achieved.
Among the
significant business objectives achieved during 2008 were the following: 75%
enrollment of the Phase 3 AGENDA trial of Genasense® in patients with advanced
melanoma; the licensing of the drug, tesetaxel from Daiichi Sankyo, obtaining
from the FDA a lifting of the clinical hold on tesetaxel, Orphan Drug
designation by the FDA for tesetaxel as treatment for advanced melanoma and
preparations for the resumption of clinical trials for tesetaxel; the sale of
122,000 shares of our common stock, raising net proceeds of $2.9 million and the
sales of $20 million of senior convertible notes, raising net proceeds of $18.7
million. These milestones enabled continued progress towards the
commercialization and development of Genasense® and tesetaxel, and were
considered carefully in evaluating executive performance and making
determinations regarding executive compensation. However, three significant
factors warranted very substantial weight in evaluating our business performance
and in making executive compensation decisions. These factors were: 1) our
receipt of a complete response letter from the FDA regarding our amended New
Drug Application (NDA) for the use of Genasense® plus chemotherapy in patients
with chronic lymphocytic leukemia (CLL) determining that FDA cannot approve the
NDA in its present form and suggested the need for an additional clinical study;
2) our inability to close a licensing or partnership deal for Genasense®,
tesetaxel, Ganite® or G4544 before the close of the fiscal year ; and 3) our
inability to raise additional operating capital before the close of the fiscal
year.
The
Committee reviewed peer analysis data, the compensation history of each
executive officer including their annual salary, cash incentive bonus and stock
option awards. Due to our failure to meet critical business and financial
objectives (as described above), Dr. Warrell recommended that, for the second
year in a row, there not be any annual salary increases and that no incentive
bonuses be paid to any employee, including executive officers and the Committee
approved Dr. Warrell’s recommendation. No year-end stock option grants were made
at the end of 2008 because we do not have a stock incentive plan. Due to our
depressed stock price and the two-year freeze on annual salaries (Dr. Warrell’s
salary was decreased by 15% by the Committee effective January 1, 2008), the
equity-based long-term incentive compensation and total compensation level
(annual salary, incentive bonus and equity based compensation) for each of the
executive officers was below the median (50th percentile). The Committee also
considered Drs. Warrell and Itri’s voluntary deferral of the cash portion of
their salaries for the period from April 19, 2008 through August 17, 2008 in
order to conserve cash. The deferred amounts, totaling approximately $816,000
have been accrued as a liability and have not been paid.
Elements
of Executive Compensation
Our
compensation package for executive officers generally consists of annual cash
compensation, which includes both fixed (annual salary) and variable (cash
incentive bonus program) elements; long-term compensation in the form of stock
options and other perquisites. The main components are annual salary, cash
incentive bonus and stock options, all of which are common elements of executive
compensation pay in general and throughout the biotechnology and pharmaceutical
industry.
Annual
Salary
We pay an
annual salary to our employees and the executive officers as consideration for
fulfillment of certain roles and responsibilities. Changes in annual salaries
for executive officers, if any, are generally effective at the beginning of each
year. As noted above, there were no annual salary increases for 2009 or
2008.
Increases
to annual salary reflect a reward and recognition for successfully fulfilling
the position’s role and responsibilities, the incremental value of the
experience, knowledge, expertise and skills the individual acquires and develops
during employment with us and adjustments as appropriate based on external
competitiveness and internal equity. In consideration of our cash resources,
there were no salary increases for 2009 or 2008 and Dr. Warrell’s base salary
was decreased by the Committee by 15% effective January 1, 2008. In order to
further conserve our cash resources, Drs. Warrell and Itri deferred the cash
portions of their salaries from April 19, 2008 through August 17, 2008, and
again agreed to defer a portion of their salaries effective January 5,
2009.
Cash
Incentive Bonus Program
The
target cash incentive bonus program award for the CEO (forty percent of annual
salary) and the President (thirty percent of annual salary) is based on the
terms of their employment agreements. The Committee determines the annual target
for the other executive officers each year based on external competitiveness and
internal equity. Based on the External Market Data, the target amounts for
executive officers who were Senior Vice Presidents and Vice Presidents were
established at thirty percent and twenty-five percent of annual salary,
respectively. As noted above, there were no cash bonuses paid to any of the
executive officers for 2008.
Typically,
we award cash incentive bonuses to employees, including the executive officers,
as a reward and recognition for contributing to our achievement of specific
annual business objectives established by the Committee at the beginning of the
year. All employees are eligible for a form of cash incentive bonus, although
payment of a cash incentive bonus is made at an individual level each year
contingent upon our overall performance. However, as described above, our
business performance was insufficient in 2008 to warrant the payment of cash
incentive bonuses to our employees, including executive officers.
Equity-Based
Compensation
We grant
equity-based compensation to employees, including executive officers, to
attract, motivate, engage and retain highly qualified and highly sought-after
employees. We grant equity awards on a broad basis to encourage all employees to
work with a long-term view. Stock options are inherently performance-based
because they deliver value to the option holder only if the value of our stock
increases. Thus, stock options are a potential reward for long-term value
creation and serve as an incentive for employees who remain with us to
contribute to the overall long-term success of the business. We also award RSUs
because we believe RSUs are an appropriate vehicle due to our ongoing concerns
over the dilutive effect of option grants on our outstanding shares, our desire
to have a more direct correlation between the FAS 123(R) compensation expense we
must take for financial accounting purposes and the actual value delivered to
our executive officers and other employees and the fact that the incentive
effects of RSUs are less subject to market volatility than stock
options. Because equity compensation is a significant component of
our compensation package, the Committee adopted our 2009 Stock Incentive Plan
which received stockholder approval on August 26, 2009, to replace the Company’s
1998 Stock Incentive Plan and 1998 Non-Employee-Directors Stock Option
Plan.
April
2008 Restricted Stock Unit Grants
On April
18, 2008, following careful analysis which included: 1) a review of market
trends, including consultation with Aon Radford Consulting (a nationally
recognized compensation consulting firm with specific expertise in dealing with
the equity issues of biopharmaceutical companies); 2) consideration of the fact
that the 1998 Plan would be expiring in May 2008; and 3) the determination that
the commitment and motivation of our workforce would be vital to ongoing efforts
to commercialize Genasense® and achieve other corporate objectives, management
recommended to the Committee that Restricted Stock Units, or RSUs, be issued to
certain executive officers and all employees under the 1998 Plan. The Committee
reviewed management’s recommendation and approved the April 2008 RSU
grants.
Two of
the five executive officers received grants under the program. Mr. Sanders and
Mr. Siegel received RSU grants of 1,300 and 800 shares, valued on their grant
dates at $26,650 and $16,400, respectively. Pursuant to there terms, the RSUs
vested 50% on January 15, 2009 and 50% on June 30, 2009. At December 31, 2008,
the value of the RSU grants to Messrs. Sanders and Siegel were $176 and $108,
respectively.
2007
Stock Incentive Plan and September 2007 Stock Option Grants
In
September, 2007, the Board approved a 2007 Stock Incentive Plan, or 2007 Plan,
conditioned upon the receipt of stockholder approval by September 17,
2008. However, due to the marked changes in the general economic
environment combined with the deterioration of the price of Genta common stock,
the Board elected not to submit the 2007 Plan to stockholders for approval and
on September 18, 2008, the 2007 Plan expired. As a consequence, Genta
currently has no forward-looking equity incentive plan at this
time.
Acquisition
Bonus Plan
In order
to retain our executive officers and other employees prior to stockholder
approval of the 2007 Plan, the Committee concurrently approved an Acquisition
Bonus Plan. Under the program, participants were eligible to
receive a portion of the proceeds realized from a change in control
that occurred prior to the earlier of (i) December 31, 2008 or (ii) the approval
by our stockholders of the 2007 Plan. On September 27, 2007, our executive
officers and employees were granted a number of units in the Acquisition Bonus
Plan that corresponded to the number of contingent stock options granted to them
under the 2007 Plan. As noted, however, the 2007 plan was never submitted for
stockholder approval, and as a consequence the Acquisition Bonus Plan expired
December 31, 2008.
2009
Stock Incentive Plan
On July
9, 2009, our Board approved our 2009 Stock Incentive Plan, or the 2009 Plan,
subject to stockholder approval at the 2009 Annual Stockholders’ Meeting. The
2009 Plan was intended to serve as a successor to the 1998 Stock Incentive Plan,
which terminated on May 28, 2008 and the 1998 Non-Employee
Directors Stock Option Plan (the “Director Plan” and, collectively with the 1998
Stock Incentive Plan, the “Predecessor Plans”). Our stockholders approved the
2009 Plan at our Annual Meeting of Stockholders on August 26,
2009. Upon stockholder approval of the 2009 Plan, the Director Plan
was terminated. With the approval of the 2009 Plan, 83,748,929 shares of our
common stock was reserved and authorized for issuance under the 2009 Plan. The
compensation committee of our Board of Directors administers the 2009 Plan. The
following types of awards may be granted under the 2009 Plan: options, stock
appreciation rights, stock awards, restricted stock units, dividend equivalent
rights and other stock-based awards.
Equity
Award Exchange Offer
On July
9, 2009, our Board approved an Equity Award Exchange Offer Program to
non-employee Directors whereby each non-employee Director was given the
opportunity to exchange their outstanding stock options to purchase shares of
Genta common stock for new replacement restricted stock units (“New RSUs”)
provided the 2009 Stock Incentive Plan was approved by our
stockholders. The 2009 Stock Incentive Plan was approved by our
stockholders on August 26, 2009. Our outstanding options have
exercise prices that are significantly higher than the current market price of
our common stock. For this reason, the Board believes that these
options have little or no current value as an incentive to retain and motivate
non-employee Directors, and are unlikely to be exercised in the foreseeable
future. By making the offer to exchange outstanding options for New RSUs, our
Board intends to provide our non-employee Directors with the benefit of
receiving equity awards that over time may have a greater potential to increase
in value, and thereby create better incentives for our non-employee Directors to
remain with us and contribute to the attainment of our business and financial
objectives and the creation of value for all of our stockholders.
Grants
to Directors under the 2009 Plan
On July
16, 2009 (the "Initial Grant Date"), each individual who (i) was being nominated
for re-election as a Director at the Annual Meeting to continue in service as a
non-employee Board member following such meeting and (ii) tendered for
cancellation his outstanding equity awards pursuant to the Equity Award Exchange
Offer (as described above) was automatically granted an award of 695,658
restricted stock units. Each of our Directors participated in the Equity Award
Exchange Offer and the restricted stock units granted on the Initial Grant Date
vested upon stockholder approval of the 2009 Plan.
Grants
to Officers under the 2009 Plan
On August
26, 2009, the Compensation Committee of our Board of Directors awarded the
following grants of restricted stock units pursuant to the 2009 Plan, and
pursuant to the our option exchange program. The 2009 Stock Incentive
Plan and accompanying option exchange program were approved by the Company’s
stockholders at the Annual Meeting of Genta Stockholders on August 26,
2009.
Raymond
P. Warrell, Jr. M. D., Chairman and Chief Executive Officer exchanged all of his
outstanding options that had been granted pursuant to the Company’s 1998 Stock
Incentive Plan, as amended. In exchange for these options, on August
31, 2009, Dr. Warrell was granted 26,474,679 shares of restricted stock units.
These restricted stock units will vest as follows: Sixty percent (60%) of the
Initial Grant amount, or 15,884,807 shares shall vest as follows: 25%, or
3,971,202 shares, on the grant date, with the balance of the 60%, or 11,913,605
shares, vesting in thirteen (13) equal portions on quarterly anniversaries from
the grant date, so as to be fully vested on December 31, 2012. Twenty
percent (20%) of the Initial Grant or 5,294,936 shares, shall vest on the date
the Company has received notice from the U.S. Food and Drug Administration or
from the European Medicines Agency that Genasense® has been approved for
marketing by U.S. Food and Drug Administration (FDA) or European Medicines
Agency (EMEA). Twenty percent (20%) of the Initial Grant, or 5,294,936 shares,
shall vest on the date when the market capitalization of the Company first
exceeds ten (10) times the market capitalization value as of the Initial Grant
date. The market capitalization value shall be calculated for the grant date and
for the vesting date using a standard measure of the Company’s daily closing
stock price multiplied by the number of shares issued and outstanding on each of
those dates. The market capitalization of Genta Incorporated on the Initial
Grant date of August 31, 2009 was $50,869,855.58 determined by multiplying the
closing stock price of $0.38, as reported by Bloomberg.com, by the number of
Genta shares issued and outstanding of 133,868,041, as determined by the
Company.
Loretta
M. Itri, M.D., President, Pharmaceutical Development and Chief Medical Officer
exchanged all of her outstanding stock options that had been granted pursuant to
the Company’s 1998 Stock Incentive Plan, as amended. In exchange for these
options, on August 31, 2009, Dr. Itri was granted 9,071,990 shares of restricted
stock units. These restricted stock units will vest as follows: twenty percent
(20%) of the Initial Grant amount, or 1,814,398 shares, shall vest as follows:
25%, or 453,600 shares, on the grant date, with the balance of the 20%, or
1,360,798 shares, vesting in thirteen (13) equal portions on quarterly
anniversaries from the grant date, so as to be fully vested on December 31,
2012. Forty percent (40%) of the Initial Grant, or 3,628,796 shares, shall vest
on the date the Company has received notice from the FDA that Genasense has been
approved for marketing by FDA in the United States. Forty percent
(40%) of the Initial Grant, or 3,628,796 shares, shall vest on the date the
Company has received notice from the EMEA that Genasense has been approved for
marketing by EMEA in Europe.
W. Lloyd
Sanders, Senior Vice President and Chief Operating Officer, exchanged all of his
outstanding options that had been granted pursuant to the Company’s 1998 Stock
Incentive Plan, as amended. In exchange for these options, on August
31, 2009, Mr. Sanders was granted 4,412,446 shares of restricted stock
units. These restricted stock units will vest as follows: twenty-five
percent (25%) of the shares shall vest as follows: (i) 367,704 shares
on November 21, 2009; (ii) 367,704 shares on March 22, 2010; and (iii) 367,704
shares on May 17, 2010. Twenty-five percent (25%) of the shares shall vest when
the gross revenues of all Products owned or in-licensed by Genta and then
marketed by either Genta or any partner licensed to market or
co-market such Products (without regard for whether Genta or the partner
primarily accounts for such revenues, books such revenues) in any calendar year
equals or exceeds $100,000,000. Such vesting will occur on the date
on which the Compensation Committee first certifies the gross revenues as having
exceeded $100,000,000 in any calendar year, but in any event no later than 30
days after release of Genta’s quarterly SEC Form 10-Q as evidence this milestone
has been achieved. The remaining shares shall vest in two equal
installments on August 31, 2010 and August 31, 2011, respectively.
Gary
Siegel, Vice President, Finance, exchanged all of his outstanding stock options
that had been granted pursuant to the Company’s 1998 Stock Incentive Plan, as
amended. In exchange for these options, on August 31, 2009, Mr.
Siegel was granted 2,941,631 shares of restricted stock units. These
restricted stock units will vest as follows: (i) 245,136 shares will vest on
November 21, 2009; (ii) 245,136 shares will vest on March 22, 2010; (iii)
245,136 shares will vest on May 17, 2010; (iv) twenty-five percent (25%) will
vest on August 31, 2010; (v) twenty-five percent (25%) will vest on August 31,
2011; and (vi) twenty-five percent (25%) will vest on August 31,
2012.
Determining
The Timing And Exercise Price Of Equity-Based Compensation
There is
no established practice of timing equity grants in advance of the release of
favorable financial results or adjusting the award date in connection with the
release of unfavorable financial developments affecting our business. Stock
option grants to Section 16 officers are made only at duly convened meetings of
the Compensation Committee. Performance awards for existing executive officers
and employees are typically made in connection with the annual review process
which occurs in January each year. Options or RSUs relating to these performance
awards are then usually granted in the January meeting of the Committee. Equity
awards for newly hired executives are typically made at the next scheduled
Committee meeting following the executive’s hire date. It is our intent that all
stock option grants have an exercise price per share equal to the closing
selling price per share on the grant date.
Retirement
Benefits
All
employees are eligible to participate in the Genta Incorporated Savings &
Retirement Plan (Savings Plan), a tax-qualified retirement savings plan, which
allows contributions to the Savings Plan on a before-tax basis in an amount up
to the lesser of 50% of the employee’s annual salary or a limit prescribed by
the Internal Revenue Service. All contributions to the Savings Plan
are fully vested upon contribution. We provide retirement benefits to our
employees because we believe retirement benefits are an integral part of
employee benefit programs within the biotechnology and pharmaceutical
industry.
Perquisites
None of
our executive officers other than our Chief Executive Officer and President,
Pharmaceutical Development and Chief Medical Officer have perquisites in excess
of $10,000 in annual value. Our Chief Executive Officer and President,
Pharmaceutical Development and Chief Medical Officer have employment agreements
that provide for the perquisites discussed under the heading “Employment
Agreements”.
Severance
Benefits
We have
adopted a severance pay program for nearly all of our employees, including
executive officers, except for Drs. Itri and Warrell, who are eligible for
severance benefits under the terms of their employment agreements as described
below. The severance pay program is intended to preserve employee morale and
productivity and encourage retention in the face of the disruptive impact of an
actual or rumored workforce reduction or a change in control of our company. In
addition, for executives, the program is intended to align executive and
stockholder interests by enabling executives to consider corporate transactions
that are in the best interests of the stockholders and other of our constituents
without undue concern over whether the transactions may jeopardize the
executive’s own employment.
These
arrangements, like other elements of executive compensation, are structured with
regard to practices at comparable companies for similarly-situated officers and
in a manner we believe is likely to attract and retain high quality executive
talent.
Although
there are some differences in the benefit levels depending on the employee’s job
level, the basic elements are comparable for all employees, except for Drs. Itri
and Warrell as noted above, and for Messrs. Sanders and Siegel, as noted
below:
|
•
|
Double
trigger. Unlike “single trigger” plans that pay out immediately upon a
change in control, Genta’s severance pay program requires a “double
trigger” — a change in control followed by an involuntary loss of
employment within one year thereafter. This is consistent with the purpose
of the program, which is to provide employees with financial protection
upon loss of employment.
|
|
•
|
Covered
terminations. Employees may be eligible for payments, if there is either a
workforce reduction or if within one year of a change in control, their
employment is terminated without cause by the
Company.
|
|
•
|
Severance
payment. Subject to signing a release, eligible terminated employees may
receive severance.
|
|
•
|
Benefit
continuation. Subject to signing a release, basic health and dental
insurance may be continued following termination of
employment.
|
|
•
|
Accelerated
vesting of equity awards. Upon a change in control, any unvested equity
awards become vested.
|
Certain
Severance Arrangements
In the
event of their termination as a result of a reduction in force or change in
control, Mr. Sanders and Mr. Siegel are eligible for up to 24 weeks of severance
equal to $131,538 and $96,923, respectively, paid in portions on a bi-weekly
basis and not as a lump sum. Mr. Sanders and Mr. Siegel are also eligible to
continue their health/dental benefits at the Company’s expense for up to four
months, with an estimated value of $7,116 each. Drs. Itri’s and Warrell’s
eligibility for severance payments are described under the heading “Employment
Agreements”.
Deductibility
of Executive Compensation
Section
162(m) of the Internal Revenue Code disallows a tax deduction to publicly held
companies for compensation paid to certain of their executive officers, to the
extent that compensation exceeds $1.0 million per covered officer in any year.
The limitation applies only to compensation that is not considered to be
performance-based. The stock options granted to our executive officers have been
structured with the objective of qualifying those awards as performance-based
compensation. Non-performance-based compensation paid to our executive officers
for 2008 did not exceed the $1.0 million limit per covered officer. The RSUs
awarded as a component of equity compensation will not qualify as
performance-based compensation. However, we believe that in establishing the
cash and equity incentive compensation programs for our executive officers, the
potential deductibility of the compensation payable under those programs should
be only one of a number of relevant factors taken into consideration, and not
the sole governing factor. For that reason, we may deem it appropriate to
provide one or more executive officers with the opportunity to earn incentive
compensation, whether through cash bonus programs tied to our financial
performance or through RSUs tied to the executive officer’s continued service,
which may, together with base salary, exceed in the aggregate the amount
deductible by reason of Section 162(m) or other provisions of the Internal
Revenue Code. We believe it is important to maintain cash and equity incentive
compensation at the levels needed to attract and retain the executive officers
essential to our success, even if all or part of that compensation may not be
deductible by reason of the Section 162(m) limitation.
2009
Objectives and Executive Compensation Guidelines
Our
business objectives for 2009 include: completing enrollment of the phase 3
AGENDA trial of Genasense® in patients with advanced melanoma; public release of
information regarding final analysis of progression-free survival (PFS) from the
advanced melanoma trial; initiating and completing enrollment of the Phase I
trial of our oral taxane, tesetaxel; and ongoing financing and business
development activities that will further the development and commercialization
of our products. At present, the 2009 compensation guidelines will be generally
comparable to the 2008 guidelines with respect to the following: components of
compensation; anticipated salary adjustments; cash incentive bonus targets and
equity-based compensation. The Committee will make adjustments if necessary
based on their assessment of a variety of factors including: industry trends;
competitive market data; business objectives and corporate
performance.
Summary
Compensation Table
The
following table sets forth certain information regarding compensation earned by
or paid to our Chief Executive Officer, and other executive officers
(collectively, the ‘‘named executive officers’’) during the years ended December
31, 2008, 2007 and 2006, respectively.
Name
and
Principal
Position
|
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)(1)
|
|
|
Option
Awards
($)(1)
|
|
|
Non-Equity
Incentive
Plan
Compensation
($)(2)
|
|
|
Nonqualified
Deferred
Compensation
earnings ($)(3)
|
|
|
All
Other
Compensation
($)
|
|
|
Total
($)
|
|
Raymond
P. Warrell, Jr. M.D.
|
|
2008
|
|
409,662 |
|
|
— |
|
|
— |
|
|
446,667 |
|
|
— |
|
|
— |
|
|
31,060 |
(4) |
|
887,389 |
|
Chairman
and Chief Executive
|
|
2007
|
|
480,000 |
|
|
— |
|
|
— |
|
|
1,139,940 |
|
|
— |
|
|
— |
|
|
41,096 |
(4) |
|
1,661,036 |
|
Officer
|
|
2006
|
|
460,000 |
|
|
— |
|
|
— |
|
|
2,743,824 |
|
|
50,000 |
|
|
— |
|
|
40,462 |
(4) |
|
3,294,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard
J. Moran (5)
|
|
2008
|
|
61,538 |
|
|
— |
|
|
— |
|
|
28,400 |
|
|
— |
|
|
— |
|
|
3,077 |
(6) |
|
93,015 |
|
Senior
Vice President,
|
|
2007
|
|
320,000 |
|
|
— |
|
|
10,463 |
|
|
29,100 |
|
|
— |
|
|
— |
|
|
17,261 |
(6) |
|
376,824 |
|
Chief
Financial Officer and Corporate Secretary
|
|
2006
|
|
304,500 |
|
|
— |
|
|
— |
|
|
35,900 |
|
|
100,000 |
|
|
— |
|
|
11,000 |
(6) |
|
451,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary
Siegel
|
|
2008
|
|
210,000 |
|
|
— |
|
|
12,551 |
|
|
17,278 |
|
|
— |
|
|
— |
|
|
11,518 |
(7) |
|
251,347 |
|
Vice
President, Finance
|
|
2007
|
|
196,846 |
|
|
— |
|
|
— |
|
|
32,007 |
|
|
— |
|
|
— |
|
|
11,250 |
(7) |
|
240,103 |
|
|
|
2006
|
|
183,750 |
|
|
— |
|
|
— |
|
|
46,778 |
|
|
66,500 |
|
|
— |
|
|
11,000 |
(7) |
|
308,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loretta
M. Itri, M.D.
|
|
2008
|
|
467,500 |
|
|
— |
|
|
— |
|
|
78,221 |
|
|
— |
|
|
— |
|
|
20,061 |
(8) |
|
565,782 |
|
President,
Pharmaceutical
|
|
2007
|
|
467,500 |
|
|
— |
|
|
— |
|
|
459,201 |
|
|
— |
|
|
— |
|
|
21,836 |
(8) |
|
948,537 |
|
Chief
Medical Officer
|
|
2006
|
|
445,200 |
|
|
— |
|
|
— |
|
|
979,852 |
|
|
— |
|
|
— |
|
|
19,848 |
(8) |
|
1,444,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
W.
Lloyd Sanders
|
|
2008
|
|
285,000 |
|
|
— |
|
|
20,396 |
|
|
39,100 |
|
|
— |
|
|
— |
|
|
5,642 |
(9) |
|
350,138 |
|
Senior
Vice President and
|
|
2007
|
|
285,000 |
|
|
— |
|
|
— |
|
|
39,100 |
|
|
— |
|
|
— |
|
|
40,405 |
(9) |
|
364,505 |
|
Chief
Operating Officer
|
|
2006
|
|
245,000 |
|
|
— |
|
|
— |
|
|
36,250 |
|
|
78,000 |
|
|
— |
|
|
33,579 |
(9) |
|
392,829 |
|
(1)
|
The amounts reflect the dollar amount recognized for financial
statement reporting purposes for the years ended December 31, 2008, 2007
and 2006, respectively, in accordance with FAS 123(R). These figures
include amounts from awards granted in 2003, 2004, 2005, 2006 and 2007.
Assumptions used in the calculations of these amounts for the years ended
December 31, 2006, 2007 and 2008, respectively, are in Note 14 of the
Company’s Annual Report on Form 10-K for the year ended December 31,
2008.
|
(2)
|
As described above, no payments
were made for 2007 or 2008 performance under our cash incentive bonus
program.
|
(3)
|
Drs. Warrell and Itri deferred a
portion of their salaries from April 19, 2008 through August 17,
2008.
|
(4)
|
All other compensation for 2008
includes $6,000 for auto allowance, $4,068 for long-term disability
(including $1,139 for income tax gross-up), $9,492 for life insurance
(including $2,657 for income tax gross-up) and $11,500 Company match to
the 401(k) Plan. All other compensation for 2007 includes $6,000 for auto
allowance, $13,419 for long-term disability (including $4,641 for income
tax gross-up), $10,427 for life insurance, (including $3,592 for income
tax gross-up) and $11,250 Company match to the 401(k) Plan. All other
compensation for 2006 includes $6,000 for auto allowance, $13,003 for
long-term disability (including 4,506 for income tax gross-up), $10,459
for life insurance (including $3,624 for income tax gross-up) and $11,000
Company match to the 401(k)
Plan.
|
(5)
|
Mr. Moran retired from Genta
effective February 29, 2008
|
(6)
|
All other compensation for 2008
includes $3,077 Company match to the 401(k) Plan. All other compensation
for 2007 includes $6,011 for life insurance (including $2,011 for income
tax gross-up) and $11,250 Company match to the 401(k) Plan. All other
compensation for 2006 includes $11,000 Company match to 401(k)
Plan.
|
(7)
|
All other compensation for 2008
includes $1,018 for life insurance, (including $313 for income tax
gross-up) and $10,500 Company match to the 401(k) Plan. All other
compensation for 2007 includes $11,250 Company match to the 401(k) Plan.
All other compensation for 2006 includes $11,000 Company match to the
401(k) Plan.
|
(8)
|
All other compensation for 2008
includes $6,605 for long-term disability (including $1,998 for income tax
gross-up), $1,956 for life insurance (including $703 for income tax
gross-up) and $11,500 Company match to the 401(k) Plan. All other
compensation for 2007 includes $6,770 for long-term disability (including
$2,161 for income tax gross-up), $3,816 for life insurance (including
$1,315 for income tax gross-up) and $11,250 Company match to the 401(k)
Plan. All other compensation for 2006 includes $7,028 for long-term
disability, (including $2,421 for income tax gross-up), $1,820 for life
insurance, (including $627 for income tax gross-up) and $11,000 Company
match to the 401(k) Plan.
|
(9)
|
All other compensation for 2008
includes $4,326 for long-term disability (including $1,064 for income tax
gross-up) and $1,316 Company match to the 401(k) Plan. All other
compensation for 2007 includes $4,497 for long-term disability (including
$1,235 for income tax gross-up), $24,658 relocation reimbursement
(including $6,106 for income tax gross-up) and $11,250 Company match to
the 401(k) Plan. All other compensation for 2006 includes $4,370 for
long-term disability, (including $1,108 for income tax gross-up), $19,459
relocation reimbursement (including $4,914 for income tax gross-up) and
$9,750 Company match to the 401(k)
Plan.
|
Grants
of Plan-Based Awards
The
following table provides summary information concerning each grant of an award
made to a named executive officer in 2008 under a compensation plan (adjusted
for the 1-for-50 reverse stock split that became effective on June 26,
2009).
|
|
|
|
|
Estimated Future Payouts
Under Non-Equity Incentive
|
|
|
Estimated Future Payouts
Under Equity Incentive
Plan Awards (2)
|
|
|
All
Other
Stock
Awards:
Number
of Shares
of Stock
or
|
|
|
All Other
Option
Awards:
Number of
Securities
Underlying
|
|
|
Exercise
Price of
Option
|
|
|
Grant Date
Fair Value
of Stock
and Option
|
|
|
|
|
|
|
Plan Awards (1)
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Units
|
|
|
Options
|
|
|
Awards
|
|
|
Awards
|
|
Name
|
|
Grant Date
|
|
|
Threshold ($)
|
|
|
Target ($)
|
|
|
Maximum ($)
|
|
|
(# Shares)
|
|
|
(# Shares)
|
|
|
(# Shares)
|
|
|
(#)(3)
|
|
|
(#)
|
|
|
($/sh)
|
|
|
($)
|
|
Dr.
Warrell
|
|
|
|
(4)
|
|
|
—
|
|
|
|
3,840
|
|
|
|
5,760
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Mr.
Moran (3)
|
|
|
|
(4)
|
|
|
—
|
|
|
|
1,920
|
|
|
|
2,560
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Mr.
Siegel
|
|
4/11/2008
|
|
|
|
0
|
|
|
|
1,050
|
|
|
|
1,470
|
|
|
|
0
|
|
|
|
400
|
|
|
|
600
|
|
|
|
800
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,400
|
|
Dr.
Itri
|
|
|
|
(4)
|
|
|
—
|
|
|
|
2,805
|
|
|
|
4,675
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Mr.
Sanders
|
|
4/11/2008
|
|
|
|
0
|
|
|
|
1,710
|
|
|
|
2,280
|
|
|
|
0
|
|
|
|
600
|
|
|
|
800
|
|
|
|
1,300
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26,650
|
|
(1)
|
Reflects the range of payouts
targeted for 2008 performance under the Genta Cash Incentive Bonus
Program, which would ordinarily be paid in January 2009; however, no
payments were earned based on 2008 performance.
|
|
|
(2)
|
Reflects restricted stock units
awarded in April 2008, which vested 50% on January 15, 2009 and 50% on
June 30, 2009.
|
|
|
(3)
|
Mr. Moran retired from Genta
effective February 29, 2008.
|
|
|
(4)
|
There were no grants of
plan-based awards during
2008.
|
Equity
Award Exchange Offer
On July
9, 2009 our Board approved an Equity Award Exchange Offer Program to
non-employee Directors whereby each non-employee Director was given the
opportunity to exchange their outstanding stock options to purchase shares of
Genta common stock for New RSUs.
Our
outstanding options have exercise prices that are significantly higher than the
current market price of our common stock. For this reason, our Board
believes that these options have little or no current value as an incentive to
retain and motivate non-employee Directors, and are unlikely to be exercised in
the foreseeable future. By making the offer to exchange outstanding options for
New RSUs, the Board intended to provide our non-employee Directors with the
benefit of receiving equity awards that over time may have a greater potential
to increase in value, and thereby create better incentives for our non-employee
Directors to remain with us and contribute to the attainment of our business and
financial objectives and the creation of value for all of our stockholders. The
Equity Award Exchange Offer expired on July 14, 2009.
As each
of our non-employee Directors submitted their eligible awards for cancellation,
they were granted a New RSU award on July 16, 2009 covering 695,658 shares. Each
RSU will entitle a non-employee Director to receive one share of Genta common
stock following vesting. The New RSUs were granted under the 2009 Plan. The 2009
Plan was adopted by the Board on July 9, 2009, and approved by the Company’s
stockholders on August 26, 2009. Upon receipt of stockholder approval of the
2009 Plan, the eligible options were cancelled.
Grants
of Plan-Based Awards
The
following table lists all outstanding Equity Awards as of December 31, 2008,
adjusted for the 1-for-50 reverse stock split that became effective on June 26,
2009.
|
|
Option Awards
|
|
|
Stock Awards
|
|
Name
|
|
Number Of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
|
|
|
Number Of
Securities
Underlying
Unexercised
Options
Unexercisable
(#(1))
|
|
|
Option
Exercise
Price
($)
|
|
|
Option
Expiration
Date
|
|
|
Number of
Shares or
Units of
Stock
That
Have
Not
Vested
(#)
|
|
|
Market
Value of
Shares or
Units of
Stock
That
Have
not
Vested
($)
|
|
Dr.
Warrell
|
|
|
10,585
|
|
|
|
—
|
|
|
|
800.50
|
|
|
10/27/09
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
2,646
|
|
|
|
—
|
|
|
|
800.50
|
|
|
02/14/10
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
1,000
|
|
|
|
—
|
|
|
|
2,390.50
|
|
|
01/01/11
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
1,000
|
|
|
|
—
|
|
|
|
4,110.00
|
|
|
01/25/12
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
1,000
|
|
|
|
—
|
|
|
|
2,358.50
|
|
|
01/28/13
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
3,333
|
|
|
|
2,964.00
|
|
|
05/16/13
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
250
|
|
|
|
—
|
|
|
|
3,096.00
|
|
|
01/04/14
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
500
|
|
|
|
—
|
|
|
|
486.00
|
|
|
01/28/15
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
2,646
|
|
|
|
—
|
|
|
|
800.50
|
|
|
10/28/15
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
563
|
|
|
|
188
|
|
|
|
615.00
|
|
|
01/23/16
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
1,667
|
|
|
|
1,666
|
|
|
|
648.00
|
|
|
03/31/16
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
167
|
|
|
|
166
|
|
|
|
137.00
|
|
|
01/12/07
|
|
|
|
—
|
|
|
|
—
|
|
Mr.
Siegel
|
|
|
46
|
|
|
|
—
|
|
|
|
3,015.00
|
|
|
05/22/13
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
23
|
|
|
|
—
|
|
|
|
3,096.00
|
|
|
01/04/14
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
33
|
|
|
|
—
|
|
|
|
750.00
|
|
|
06/30/14
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
33
|
|
|
|
—
|
|
|
|
486.00
|
|
|
01/07/15
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
93
|
|
|
|
12
|
|
|
|
282.00
|
|
|
04/04/15
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
25
|
|
|
|
8
|
|
|
|
270.00
|
|
|
04/15/15
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
02
|
|
|
|
8
|
|
|
|
555.00
|
|
|
09/19/15
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
25
|
|
|
|
8
|
|
|
|
615.00
|
|
|
01/23/16
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
8
|
|
|
|
16
|
|
|
|
231.00
|
|
|
12/01/16
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
20
|
|
|
|
20
|
|
|
|
137.00
|
|
|
01/12/17
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
800
|
(2)
|
|
|
108
|
(3)
|
Dr.
Itri
|
|
|
1,000
|
|
|
|
—
|
|
|
|
1,719.00
|
|
|
03/28/11
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
133
|
|
|
|
—
|
|
|
|
4,110.00
|
|
|
01/25/12
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
100
|
|
|
|
—
|
|
|
|
2,358.50
|
|
|
01/28/13
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
1,000
|
|
|
|
3,585.00
|
|
|
08/05/13
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
166
|
|
|
|
—
|
|
|
|
3,096.00
|
|
|
01/05/14
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
100
|
|
|
|
—
|
|
|
|
486.00
|
|
|
01/07/15
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
125
|
|
|
|
41
|
|
|
|
615.00
|
|
|
01/23/16
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
407
|
|
|
|
1,259
|
|
|
|
477.00
|
|
|
07/27/16
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
83
|
|
|
|
83
|
|
|
|
137.00
|
|
|
01/12/17
|
|
|
|
—
|
|
|
|
—
|
|
Mr.
Sanders
|
|
|
250
|
|
|
|
83
|
|
|
|
543.00
|
|
|
01/16/16
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
50
|
|
|
|
50
|
|
|
|
137.00
|
|
|
01/12/17
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,300
|
(2)
|
|
|
176
|
(3)
|
(1)
|
Each option will vest in full on
an accelerated basis upon certain changes in control as described in more
detail under the heading “Termination of Employment and Change in Control
Agreements” herein.
|
(2)
|
Reflects restricted stock units
awarded in April 2008, which vested 50% on January 15, 2009 and 50% on
June 30, 2009.
|
(3)
|
Based on the $0.13 closing price
of our common stock on December 31,
2008.
|
Option
Exercises and Stock Vesting in Last Year
None of
our named executive officers exercised options and no stock awards held by our
named executive officers vested in the year ended December 31,
2008.
Nonqualified
Deferred Compensation
The
following table shows the deferred compensation activity for each named
executive officer during the 2008 fiscal year.
Name
|
|
Executive
Contributions
in Last FY
($)
|
|
Registrant
Contributions
in Last FY
($)
|
|
Aggregate
Earnings in
Last FY
($)
|
|
Aggregate
Withdrawals/
Distributions
($)
|
|
Aggregate
Balance at
Last FYE
($)
|
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
(f)
|
|
Dr.
Warrell
|
|
|
178,104
|
|
|
|
|
|
|
|
|
178,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr.
Itri
|
|
|
203,010
|
|
|
|
|
|
|
|
|
203,010
|
|
Employment
Agreement with Raymond P. Warrell, Jr., M.D.
Pursuant
to an employment agreement dated as of January 1, 2006, by and between Genta and
Dr. Warrell, that was subsequently amended and restated as of November 30, 2007,
and later amended as of December 31, 2008, hereinafter referred to as the
Warrell employment agreement, Dr. Warrell continues to serve as our Chairman and
Chief Executive Officer. The Warrell employment agreement has an initial term of
three years ending on December 31, 2010 and provides for automatic extensions
for additional one-year periods. Under the Warrell employment agreement, Dr.
Warrell’s $480,000 annual base salary was reduced by 15% effective January 1,
2008; and he now receives a base salary of $408,000 per annum with annual
percentage increases equal to at least the Consumer Price Index for the calendar
year preceding the year of the increase. At the end of each calendar year, Dr.
Warrell is eligible for a cash incentive bonus ranging from 0% to 60% of his
annual base salary, subject to the achievement of agreed-upon goals and
objectives.
As noted
above, Dr. Warrell exchanged all of his outstanding options that had been
granted pursuant to the Company’s 1998 Stock Incentive Plan, as amended.
In exchange for these options, on August 31, 2009, Dr. Warrell was granted
26,474,679 shares of restricted stock units. These restricted stock units will
vest as follows: Sixty percent (60%) of the Initial Grant amount, or 15,884,807
shares shall vest as follows: 25%, or 3,971,202 shares, on the grant date, with
the balance of the 60%, or 11,913,605 shares, vesting in thirteen (13) equal
portions on quarterly anniversaries from the grant date, so as to be fully
vested on December 31, 2012. Twenty percent (20%) of the Initial Grant or
5,294,936 shares, shall vest on the date the Company has received notice from
the U.S. Food and Drug Administration or from the European Medicines Agency that
Genasense® has been approved for marketing by U.S. Food and Drug Administration
(FDA) or European Medicines Agency (EMEA). Twenty percent (20%) of the Initial
Grant, or 5,294,936 shares, shall vest on the date when the market
capitalization of the Company first exceeds ten (10) times the market
capitalization value as of the Initial Grant date. The market capitalization
value shall be calculated for the grant date and for the vesting date using a
standard measure of the Company’s daily closing stock price multiplied by the
number of shares issued and outstanding on each of those dates. The market
capitalization of Genta Incorporated on the Initial Grant date of August 31,
2009 was $50,869,855.58 determined by multiplying the closing stock price of
$0.38, as reported by Bloomberg.com, by the number of Genta shares issued and
outstanding of 133,868,041, as determined by the Company. If a Trigger Event
occurs during the term of the Warrell employment agreement or within 12 months
thereafter, Dr. Warrell will be entitled to receive the stock option grants that
he would have been entitled to receive in respect of the calendar year in which
the Trigger Event occurs (assuming attainment of “target” levels of performance
on all goals and objectives for the year), and such option will be fully vested
and exercisable upon grant.
We may
also, from time to time, grant Dr. Warrell additional cash, stock options,
equity and/or other long-term incentive awards in the sole discretion of our
Board. Dr. Warrell continues to be entitled to any and all medical insurance,
dental insurance, life insurance, disability insurance and other benefit plans,
which are generally available to our senior executives. He is also entitled to
receive supplemental life insurance and supplemental disability insurance, as
well as premium payments for medical malpractice insurance up to a maximum of
$25,000 annually. The aggregate amount of the benefits Dr. Warrell may receive
are subject to parachute payment limitations under Section 280G of the Internal
Revenue Code.
In the
event Dr. Warrell’s employment is terminated, he will be eligible for certain
benefits whose value has been estimated herein, but only to the extent that the
benefit is not otherwise provided to employees on a non-discriminatory basis. In
the event Dr. Warrell’s employment is terminated, he will be entitled to receive
his accrued but unpaid base salary through his termination date, his accrued but
unpaid expenses, a lump sum payment of his accrued vacation days (unless he is
terminated by us for cause or he terminates his employment without good reason
(both defined in the Warrell employment agreement)), his accrued but unpaid cash
incentive bonus, a lump sum payment of his pro-rated cash incentive bonus for
the year of his termination, valued up to $163,200, (unless he is terminated by
us for cause or he terminates his employment without good reason), and any other
benefits due him in accordance with applicable plans, programs or agreements. In
addition to the benefits listed in the preceding sentence, in the event we
terminate Dr. Warrell’s employment without cause or Dr. Warrell terminates his
employment for good reason and he executes a release, Dr. Warrell will be
entitled to receive the base salary he would have received during the
twelve-month period following the date of termination, valued at $408,000, for a
total potential payment of $571,200. If we terminate Dr. Warrell’s employment in
anticipation of our change in control or, if either party terminates his
employment upon a change in control or within thirteen months following a change
in control, Dr. Warrell will instead receive a lump sum payment equal to two
times his annual base salary, valued at $816,000 and two times his target bonus
for the calendar year of termination, valued at $326,400, for a total potential
payment of $1,142,000. Dr. Warrell will also receive immediate vesting of all
stock options that vest solely as a result of his continued employment. Finally,
if either party gives notice that they do not wish to extend the Warrell
employment agreement, Dr. Warrell will be entitled to receive his accrued, but
unpaid, base salary through his termination date; his accrued, but unpaid,
expenses; a lump sum payment of his accrued vacation days; his accrued but
unpaid cash incentive bonus; a lump sum payment of his pro-rated cash incentive
bonus for the year of his termination, valued up to $163,200; and any other
benefits due him in accordance with applicable plans, programs or agreements. If
Dr. Warrell gives notice that he does not wish to extend his employment
agreement, he will also receive immediate vesting of all stock options that
would have vested during the 90 days following his termination date, if such
stock options vest solely as a result of his continued employment. If we give
notice that we do not wish to extend Dr. Warrell’s employment agreement, he will
receive immediate vesting of all stock options that vest solely as a result of
his continued employment.
Employment
Agreement with Loretta M. Itri, M.D.
Pursuant
to an employment agreement dated as of March 28, 2006, by and between Genta and
Dr. Itri, signed on July 27, 2006, and amended as of December 31, 2008, Dr. Itri
continues to serve as our President, Pharmaceutical Development and Chief
Medical Officer. The employment agreement had an initial term of three years,
beginning March 28, 2006 and continuing through March 27, 2009 and provides for
automatic extensions for additional one-year periods. The agreement provided for
a base annual salary in 2006 of $445,200, which may be reviewed annually for
discretionary increases in a manner similar to our other senior executives and
an annual cash incentive bonus ranging from 0% to 50% of her annual base salary
to be paid if mutually agreed-upon goals and objectives are achieved for the
year. As noted above, Dr. Itri exchanged all of her outstanding stock options
that had been granted pursuant to the Company’s 1998 Stock Incentive Plan, as
amended. In exchange for these options, on August 31, 2009, Dr. Itri was granted
9,071,990 shares of restricted stock units. These restricted stock units will
vest as follows: twenty percent (20%) of the Initial Grant amount, or 1,814,398
shares, shall vest as follows: 25%, or 453,600 shares, on the grant date, with
the balance of the 20%, or 1,360,798 shares, vesting in thirteen (13) equal
portions on quarterly anniversaries from the grant date, so as to be fully
vested on December 31, 2012. Forty percent (40%) of the Initial Grant, or
3,628,796 shares, shall vest on the date the Company has received notice from
the FDA that Genasense® has been approved for marketing by FDA in the United
States. Forty percent (40%) of the Initial Grant, or 3,628,796 shares,
shall vest on the date the Company has received notice from the EMEA that
Genasense® has been approved for marketing by EMEA in Europe. We may also, from
time to time, grant Dr. Itri additional stock options consistent with the stock
option guidelines applicable to our other senior executives. Dr. Itri is
entitled to any and all medical insurance, dental insurance, life insurance,
disability insurance and other benefit plans, which are generally available to
our senior executives. She is also entitled to receive supplemental life
insurance and supplemental disability insurance. The aggregate amount of the
benefits Dr. Itri may receive are subject to parachute payment limitations under
Section 280G of the Internal Revenue Code.
In the
event Dr. Itri’s employment is terminated, she will be eligible for certain
benefits whose value has been estimated herein, but only to the extent that the
benefit is not otherwise provided to employees on a non-discriminatory basis. In
the event Dr. Itri’s employment is terminated, she will be entitled to receive
her accrued, but unpaid, base salary through her termination date; her accrued,
but unpaid, expenses; her accrued vacation days; any earned but unpaid cash
incentive bonus; and any other benefits due her in accordance with applicable
plans, programs or agreements. In addition to the benefits listed in the
preceding sentence, in the event we terminate Dr. Itri’s employment without good
reason (as defined in the employment agreement), due to a change of control, or
Dr. Itri terminates her employment for good reason (as defined in the employment
agreement), and she executes a release, Dr. Itri will be entitled to receive a
lump sum payment equal to her current annualized base salary, valued at $467,500
plus a pro-rated cash incentive bonus for the calendar year of termination,
valued up to $140,250, for a total potential payment of $607,750, and each of
her outstanding stock options will immediately vest to the extent vesting
depends solely on her continued employment. Finally, if either party gives
notice that the employment agreement will not be extended, Dr. Itri will be
entitled to receive her accrued, but unpaid, base salary through her termination
date; her accrued, but unpaid, expenses; her accrued vacation days; any earned,
but unpaid, cash incentive bonus; a pro-rated cash incentive bonus for the year
of her termination, valued up to $140,250, for a total potential payment of
$607,750; and any other benefits due her in accordance with applicable plans,
programs, or agreements. If we give notice that we do not wish to extend Dr.
Itri’s employment agreement, she will also receive immediate vesting of all
stock options that would have vested during the 90 days following her
termination date, if such stock options would have vested solely as a result of
her continued employment.
Compensation
of Directors
Our
non-employee directors receive $15,000 per year for their services. Non-employee
directors receive an additional $1,500 for each Board meeting and $1,000 for
each committee meeting attended in person and $750 for each Board or committee
meeting attended telephonically. The Lead Director and each non-employee
Chairperson of a Committee of the Board receive annual cash compensation of
$5,000. Non-employee Directors receive $2,500 per day for Board or committee
activities outside of normal activities. Due to the Company’s inability to raise
capital and in order to conserve cash, only a small portion of the amounts
earned by each Director was paid during 2008.
Currently,
under our Non-Employee Directors’ 1998 Stock Option Plan, each non-employee
Director receives an option to purchase 80 shares of our common stock upon his
or her initial election to the Board. In addition, on the date of each annual
stockholders’ meeting, each individual who is to continue to serve as a
non-employee Board member is granted an option to purchase 67 shares of our
common stock. The Lead Director and each non-employee Chairperson of a committee
of the Board receive an option to purchase 17 shares of our common stock
coinciding with their annual election to the Board. Each such option will have
an exercise price per share equal to the fair market value per share of the
common stock on the grant date and will have a maximum term of 10
years.
On June
25, 2009, our Board approved the 2009 Stock Incentive Plan (the “2009 Plan”),
pursuant to which 83,478,929 shares of our common stock will be authorized for
issuance. Upon receipt of stockholder approval at the 2009 Annual Meeting of
Stockholders, each individual who (i) was to continue in service as a
non-employee Board member following such date and (ii) tendered for cancellation
his or her outstanding equity awards pursuant to our Equity Award Exchange Offer
was automatically granted a restricted stock unit (“RSU”) covering 695,658
shares.
Each
individual who is first elected or appointed as a non-employee Board member at
any time after the 2009 Annual Meeting of Stockholders shall automatically be
granted on the date of such election or appointment, an award in the form of
fully vested shares of common stock and/or options with a value equal to the
Applicable Annual Amount. Our Compensation Committee will have the sole
discretion to determine the amount and type of award for each year. The
Applicable Annual Amount will be determined by the Compensation Committee on or
before the date of the grant, but in no event will such amount exceed
$100,000.00
On the
date of each annual stockholders meeting, beginning with the 2010 Annual
Meeting, each individual who is at that time serving as, and is to continue to
serve as, a non-employee Board member will automatically be granted an award
(the “Annual Award”) in the form of fully vested shares of common stock and/or
options with a value not to exceed $100,000.00. Our Compensation Committee will
have the sole discretion to determine the amount and type of award for each
year. The Applicable Annual Amount will be determined by the Compensation
Committee on or before the date of the grant, but in no event will such amount
exceed $100,000.00.
The
following table sets forth certain information regarding compensation earned by
the following non-employee directors of the Company during the year ended
December 31, 2008:
Name
|
|
Fees paid ($)
(1)
|
|
|
Stock
Awards
($)
|
|
|
Option
awards
($) (2)
|
|
|
Non-Equity
Incentive Plan
Compensation ($)
|
|
|
Change in Pension
Value and Nonqualified
Deferred Compensation
($)
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
Martin J. Driscoll (3)
|
|
$
|
38,000
|
|
|
|
-
|
|
|
$
|
6,753
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
44,753
|
|
Christopher P. Parios
|
|
$
|
36,750
|
|
|
|
-
|
|
|
$
|
4,267
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
41,017
|
|
Daniel D. Von Hoff, M.D.
|
|
$
|
27,000
|
|
|
|
-
|
|
|
$
|
733
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
27,733
|
|
Douglas G. Watson
|
|
$
|
43,250
|
|
|
|
-
|
|
|
$
|
1,100
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
44,350
|
|
|
(1)
|
Reflects the dollar amount earned
by the non-employee Director during 2008. Due to the Company’s inability
to raise capital and in order to conserve cash, only a small portion of
the amounts earned by each Director was paid during 2008. The amount of
fees paid to each Director during 2008 was: Martin J. Driscoll: $2,250;
Christopher P. Parios: $3,750; Daniel D. Von Hoff, M.D.: $3,000; Douglas
G. Watson: $3,750
|
|
(2)
|
Represents the compensation cost
recognized for financial statement purposes for the year ended December
31, 2008, in accordance with Statement of Financial Accounting Standards
No. 123(R) (FAS 123(R)) with respect to the option awards made to the
non-employee Directors, including awards which may have been made in
earlier years. For information regarding assumptions underlying the FAS
123(R) valuation of our equity awards, see Note 15 of the Consolidated
Financial Statements in the Company’s Annual Report on Form 10-K for the
year ended December 31, 2008. As of December 31, 2008, each Director had
the following number of options outstanding, (adjusted for the Company’s
1-for-50 reverse stock split that became effective on June 26, 2009):
Martin J. Driscoll: 363; Christopher P. Parios: 280; Daniel D. Von Hoff:
756; Douglas G. Watson: 647.
|
|
|
|
|
(3)
|
As
of August 26, 2009, Mr. Driscoll is not a member of the Board of
Directors.
|
Committees
of the Board of Directors and Director Independence
The Board
currently consists of four directors. They are Raymond P. Warrell, Jr., M.D.,
Christopher P. Parios, Daniel D. Von Hoff, M.D., and Douglas G. Watson. The
Board has determined that, except for Dr. Warrell, all of the members of the
Board are “independent directors”. Dr. Warrell is not considered independent, as
he is an executive officer of the Company.
Compensation
Committee
As of
August 26, 2009, the Compensation Committee consists of Christopher P. Parios,
Daniel D. Von Hoff and Douglas G. Watson. Mr. Watson serves as Chairman of this
Committee. Each member of the Compensation Committee is
independent.
Nominating
and Corporate Governance Committee
The Board
of Directors acts as the Nominating and Corporate Governance
Committee.
Audit
Committee
The Audit
Committee was established in accordance with Section 3(a)(58)(A) of the
Securities Exchange Act of 1934, as amended. As of August 26, 2009, the Audit
Committee consists of Christopher P. Parios Daniel D. Von Hoff and Douglas G.
Watson. Mr. Watson serves as Chairman of this Committee. Each member of the
Audit Committee is independent.
Compensation
Committee Interlocks and Insider Participation
None of
the members of our Compensation Committee, Mr. Watson, Mr. Von Hoff and Mr.
Parios, was at any time during our year ended December 31, 2008, or formerly our
officer or employee. None of our executive officers have served as a director or
member of the Board of Directors or the Compensation Committee (or other
committee serving an equivalent function) of any other entity while an executive
officer of that other entity served as a director of or member of our Board of
Directors or our Compensation Committee.
SECURITY
OWNERSHIP OF MANAGEMENT
The
following table sets forth, as of December 16, 2009, certain information with
respect to the beneficial ownership of our common stock (the only voting class
outstanding), (i) by each Director, (ii) by each of the named executive officers
and (iii) by all officers and Directors as a group.
|
|
Amount and Nature of Beneficial Ownership
|
|
Name and Address (1)
|
|
Number of Shares (2)
|
|
|
Percent of Class
|
|
Raymond
P. Warrell, Jr., M.D.
|
|
|
9,590,534 |
(3) |
|
|
4.999 |
% |
Loretta
M. Itri, M.D.
|
|
|
9,590,534 |
(4) |
|
|
4.999 |
% |
Richard
J. Moran
|
|
|
434 |
(5) |
|
|
* |
|
Gary
Siegel
|
|
|
- |
|
|
|
* |
|
W.
Lloyd Sanders
|
|
|
919 |
(6) |
|
|
* |
|
Martin
J. Driscoll (7)
|
|
|
408 |
(6) |
|
|
* |
|
Christopher
P. Parios
|
|
|
585,658 |
(6) |
|
|
* |
|
Daniel
D. Von Hoff, M.D.
|
|
|
420,658 |
(6) |
|
|
* |
|
Douglas
G. Watson
|
|
|
450,858 |
(6) |
|
|
* |
|
All
Directors and Executive Officers as a group
|
|
|
11,049,111 |
(8) |
|
|
5.6 |
% |
*
|
Less than one percent
(1%).
|
(1)
|
The address of each named holder
is in care of Genta Incorporated, 200 Connell Drive, Berkeley Heights, NJ
07922.
|
(2)
|
Beneficial ownership is
determined in accordance with the rules of the SEC and generally includes
voting or investment power with respect to securities. Shares of common
stock subject to options exercisable within 60 days of December 16, 2009
or issuable on conversion of Senior Secured Convertible Promissory Notes
due June 9, 2010 are deemed outstanding for computing the percentage of
the person holding such securities but are not deemed outstanding for
computing the percentage of any other person. Except as indicated by
footnote, and subject to community property laws where applicable, the
person named in the table has sole voting and investment power with
respect to all shares of common stock shown as beneficially owned by
them.
|
(3)
|
Consists
of 486,380 shares of common stock held in Dr. Warrell’s IRA and 943,978
shares of common stock held in a joint account with Dr. Warrell’s wife,
Dr. Itri. Dr. Warrell indirectly owns 3,114,224 shares held in Dr.
Itri’s IRA, of which Dr. Warrell is the beneficiary. Also includes
5,045,952 shares of common stock issuable upon the conversion of Senior
Secured Convertible Promissory Notes due June 9,
2010.
|
(4)
|
Consists
of 943,978 shares of common stock held in a joint account with Dr. Warrell
and 3,114,224 shares held in Dr. Itri’s IRA. Dr. Itri indirectly
owns 486,380 shares of common stock held in Dr. Warrell’s IRA, of which
Dr. Itri is the beneficiary. Also includes 5,045,952 shares of common
stock issuable upon the conversion of Senior Secured Convertible
Promissory Notes due June 9, 2010
|
(5)
|
Consists of 433 shares of common
stock and 1 share of common stock owned by Mr. Moran’s wife. Mr. Moran
retired from the Company in February
2008.
|
(6)
|
Consists
of shares of common stock
|
(7)
|
As of August 26, 2009, Mr.
Driscoll is not a member of the Board of
Directors
|
(8)
|
Consists of 6,003,159 shares of
common stock and 5,045,952 shares of common stock issuable upon the
conversion of Senior Secured Convertible Promissory Notes due June 9,
2010.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The
following table sets forth, as of December 16, 2009, certain information with
respect to the beneficial ownership of our common stock by persons known by us
to be beneficial owners of more than 5% of our common stock. The
information in this table is based solely on statements in filings with the SEC
or other reliable information.
|
|
Amount and Nature of Beneficial Ownership
|
|
Name and Address
|
|
Number of Shares
|
|
|
Percent of Class
|
|
Tang
Capital Partners, LP
4401
Eastgate Mall
San
Diego, CA 92121
|
|
|
19,477,127 |
(1) |
|
|
9.9 |
% |
BAM
Opportunity Fund, L.P.
|
|
|
14,383,626 |
(2) |
|
|
7.2 |
% |
Felix
J. Baker and Julian C. Baker
|
|
|
19,179,170 |
(3) |
|
|
9.9 |
% |
Arcus
Ventures Fund, L.P.
|
|
|
14,171,842 |
(4) |
|
|
7.1 |
% |
Cat
Trail Private Equity Fund, LLC
|
|
|
19,179,170 |
(5) |
|
|
9.9 |
% |
Boxer
Capital LLC
|
|
|
15,491,026 |
(6) |
|
|
7.7 |
% |
(1)
|
Tang Capital Partners, LP is the
beneficial owner of 19,477,127 shares of Common Stock, comprised of
16,497,257 shares of Common Stock, $86,047.74 face amount of the June 2008
Notes, which are convertible into 860,478 shares of Common Stock,
$1,911,666.67 face amount of the April 2009 Notes, which are convertible
into 19,116,667 shares of Common Stock, $1,954,299.48 face amount of July
2009 Notes, which are convertible into 19,542,995 shares of Common Stock,
and $633,614.68 face amount of September 2009 Notes, which are convertible
into 6,336,147 shares of Common Stock. Additionally, Tang Capital
Partners, LP holds an April 2009 Warrant to purchase 4,625,000 shares of
the Issuer’s Common Stock at an exercise price of $0.50 per share, July
2009 Warrants to purchase 5,831,576 shares of the Issuer’s Common Stock at
an exercise price of $1.00 per share and a September 2009 Warrant to
purchase 1,584,037 shares of the Issuer’s Common Stock at an exercise
price of $1.00 per share. Tang Capital Partners, LP also has the
right, pursuant to a Securities Purchase Agreement dated April 2, 2009, to
purchase an additional $1,850,000.00 face amount of the April 2009 Notes,
which are convertible into 18,500,000 shares of Common Stock, and a
warrant to purchase 4,625,000 shares at an exercise price of $0.50 per
share. Tang Capital Partners LP also has the right, pursuant to a
Consent Agreement dated April 2, 2009, and amended on May 22, 2009 and
July 7, 2009, to purchase $2,832,951.79 face amount of the April 2009
Notes, which are convertible into 28,329,518 shares of Common Stock.
The June 2008 Notes and the April 2009 Notes can only be converted to the
extent that, after such conversion, the Reporting Persons would
beneficially own no more than 4.999% of the Issuer’s Common Stock.
The July 2009 Notes and the September 2009 Notes can only be converted to
the extent that, after such conversion, the Reporting Persons would
beneficially own no more than 9.999% of the Issuer’s Common Stock.
The July 2009 Warrants are not exercisable until after January 7, 2010 and
March 4, 2010, respectively, and the September 2009 Warrants are not
exercisable until after March 4, 2010, and after each such date, the
warrants are only exercisable to the extent that, after such exercise, the
Reporting Persons would beneficially own no more than 4.999% of the
Issuer’s Common Stock. Additionally, the July 2009 Notes and the
September 2009 Notes can only be converted beginning the earlier of (i)
two weeks from the effectiveness of a resale registration statement
registering the common stock underlying such notes and (ii) the date that
is six months following the issuance date. The beneficial ownership
total assumes that this registration statement has been declared effective
and the July 2009 Notes and the September 2009 Notes are currently
convertible according to their respective terms. Tang Capital Partners
shares voting and dispositive power over such shares, notes and warrants
with Tang Capital Management and Kevin C. Tang. Tang Capital
Management, as the general partner of Tang Capital Partners, may be deemed
to beneficially own the shares held or acquirable by Tang Capital
Partners. Tang Capital Management shares voting and dispositive
power over such shares with Tang Capital Partners and Kevin C. Tang.
Kevin C. Tang, as manager of Tang Capital Management, may be deemed to
beneficially own the shares held or acquirable by Tang Capital
Partners. Mr. Tang shares voting and dispositive power over such
shares with Tang Capital Partners and Tang Capital Management. Mr.
Tang disclaims beneficial ownership of all shares reported herein except
to the extent of his pecuniary interest
therein.
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(2)
|
The BAM Opportunity Fund, L.P. is
the beneficial owner of 14,383,626 shares of Common Stock, comprised of
6,157,564 shares of Common Stock, $18,254.50 of the April 2009 Notes,
which are convertible into 182,545 shares of Common Stock, and $479,500 of
September 2009 Notes, which are convertible into 4,795,000 shares of
Common Stock. The fund also holds a July 2009 Warrant to purchase 717,500
shares with an exercise price of $1.00 per share, which warrant is not
exercisable until January 7, 2010, and a September 2009 Warrant to
purchase 1,198,750 shares with an exercise price of $1.00 per share, which
warrant is not exercisable until March 4, 2010. The fund also has the
right, pursuant to a Securities Purchase Agreement dated April 2, 2009, to
purchase an additional $800,000 face amount of the April 2009 Notes, which
are convertible into 8,000,000 shares of Common Stock, and a warrant to
purchase 2,000,000 shares with an exercise price of $0.50 per share. The
April 2009 Notes can only be converted to the extent that, after such
conversion, the Reporting Persons would beneficially own no more than
4.999% of the Issuer’s Common Stock. The September 2009 Notes can
only be converted to the extent that, after such conversion, the Reporting
Persons would beneficially own no more than 9.999% of the Issuer’s Common
Stock. The July 2009 Warrants are not exercisable until after
January 7, 2010, and the September 2009 Warrants are not exercisable until
after March 4, 2010, and after each such date, the warrants are only
exercisable to the extent that, after such exercise, the Reporting Persons
would beneficially own no more than 4.999% of the Issuer’s Common
Stock. Additionally, the September 2009 Notes can only be converted
beginning the earlier of (i) two weeks from the effectiveness of a resale
registration statement registering the common stock underlying such notes
and (ii) the date that is six months following the issuance date.
The beneficial ownership total assumes that this registration statement
has been declared effective and the September 2009 Notes are currently
convertible according to their respective terms. The BAM Opportunity Fund,
L.P. is a private investment partnership, the sole general partner of
which is BAM Capital, LLC. As the sole general partner, BAM Capital, LLC
has the power to vote and dispose of the Common Stock owned by the BAM
Opportunity Fund, L.P. and, accordingly, may be deemed the “beneficial
owner” of such Common Stock. As the investment manager of the BAM
Opportunity Fund, L.P., BAM Management, LLC has the power to vote and
dispose of the Common Stock owned by the BAM Opportunity Fund, L.P. and,
accordingly, may be deemed the “beneficial owner” of such Common Stock.
The managing members of BAM Capital, LLC and BAM Management, LLC are Hal
Mintz and Ross Berman. Each of BAM Capital, LLC, BAM Management, LLC, Hal
Mintz and Ross Berman disclaims beneficial ownership of all shares of
Common Stock held or acquirable by the BAM Opportunity Fund, L.P., except
to the extent of their pecuniary interest
therein.
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(3)
|
667, L.P., 667, L.P. #2, Baker
Brothers Life Sciences, L.P. and 14159, L.P. (collectively, the “Baker
Bros. Affiliates”) are the beneficial owners of a total of 19,179,170
shares of Common Stock which are held as set forth below. .
667, L.P.: 9,545,699 shares of Common Stock, comprised of 1,551,822 shares
of Common Stock, $9,835.03 of the June 2008 Notes, which are convertible
into 98,350 shares of Common Stock, $196,333.33 of the April 2009 Notes,
which are convertible into 1,963,333 shares of Common Stock, $162,303.62
of July 2009 Notes, which are convertible into 1,623,036 shares of Common
Stock, and $78,279.60 of September 2009 Notes, which are convertible into
782,796 shares of Common Stock. The fund also holds an April 2009 Warrant
to purchase 475,000 shares with an exercise price of $0.50 per share, a
July 2009 Warrant to purchase 170,000 shares with an exercise price of
$1.00 per share, which warrant is not exercisable until January 7, 2010, a
July 2009 Warrant to purchase 314,217 shares with an exercise price of
$1.00 per share, which warrant is not exercisable until March 4, 2010, and
a September 2009 Warrant to purchase 195,700 shares with an exercise price
of $1.00 per share, which warrant is not exercisable until March 4, 2010.
The fund also has the right, pursuant to a Securities Purchase
Agreement dated April 2, 2009, to purchase an additional $190,000.00 face
amount of the April 2009 Notes, which are convertible into 1,900,000
shares of Common Stock, and a warrant to purchase 475,000 shares with an
exercise price of $0.50 per share. The fund also has the right,
pursuant to a Consent Agreement dated April 2, 2009, and amended on May
22, 2009 and July 7, 2009, to purchase $212,687.50 face amount of the
April 2009 Notes, which are convertible into 2,126,875 shares of Common
Stock. 667, L.P. #2: 7,661,357 shares of Common Stock, comprised of
1,262,179 shares of Common Stock, $7,852.39 of the June 2008 Notes, which
are convertible into 78,524 shares of Common Stock, $160,166.07 of the
April 2009 Notes, which are convertible into 1,601,667 shares of Common
Stock, $120,325.80 of July 2009 Notes, which are convertible into
1,203,258 shares of Common Stock, and $63,798.40 of September 2009 Notes,
which are convertible into 637,984 shares of Common Stock. The fund also
holds an April 2009 Warrant to purchase 387,500 shares with an exercise
price of $0.50 per share, a July 2009 Warrant to purchase 140,000 shares
with an exercise price of $1.00 per share, which warrant is not
exercisable until January 7, 2010, a July 2009 Warrant to purchase 256,087
shares with an exercise price of $1.00 per share, which warrant is not
exercisable until March 4, 2010, and a September 2009 Warrant to purchase
159,496 shares with an exercise price of $1.00 per share, which warrant is
not exercisable until March 4, 2010. The fund also has the right, pursuant
to a Securities Purchase Agreement dated April 2, 2009, to purchase an
additional $155,000.00 face amount of the April 2009 Notes, which are
convertible into 1,550,000 shares of Common Stock, and a warrant to
purchase 387,500 shares with an exercise price of $0.50 per share.
The fund also has the right, pursuant to a Consent Agreement dated April
2, 2009, and amended on May 22, 2009 and July 7, 2009, to purchase
$174,300 face amount of the April 2009 Notes, which are convertible into
1,743,000 shares of Common Stock. Baker Brothers Life Sciences L.P.:
93,416,380 shares of Common Stock, comprised of 11,882,595 shares of
Common Stock, $73,101.63 of the June 2008 Notes, which are convertible
into 731,017 shares of Common Stock, $1,506,600 of the April 2009 Notes,
which are convertible into 15,066,000 shares of Common Stock,
$1,192,999.17 of July 2009 Notes, which are convertible into 11,929,992
shares of Common Stock, and $599,836.10 of September 2009 Notes, which are
convertible into 5,998,361 shares of Common Stock. The fund also holds an
April 2009 Warrant to purchase 3,645,000 shares with an exercise price of
$0.50 per share, a July 2009 Warrant to purchase 1,307,500 shares with an
exercise price of $1.00 per share, which warrant is not exercisable until
January 7, 2010, a July 2009 Warrant to purchase 2,407,747 shares with an
exercise price of $1.00 per share, which warrant is not exercisable until
March 4, 2010, and a September 2009 Warrant to purchase 1,499,590 shares
with an exercise price of $1.00 per share, which warrant is not
exercisable until March 4, 2010. The fund also has the right, pursuant to
a Securities Purchase Agreement dated April 2, 2009, to purchase an
additional $1,458,000.00 face amount of the April 2009 Notes, which are
convertible into 14,580,000 shares of Common Stock, and a warrant to
purchase 3,645,000 shares with an exercise price of $0.50 per share. The
fund also has the right, pursuant to a Consent Agreement dated April 2,
2009, and amended on May 22, 2009 and July 7, 2009, to purchase $1,635,100
face amount of the April 2009 Notes, which are convertible into 16,351,000
shares of Common Stock. 14159, L.P.: 2,338,925 shares of Common
Stock, comprised of 381,318 shares of Common Stock, $2,226.62 of the June
2008 Notes, which are convertible into 22,267 shares of Common Stock,
$48,566.67 of the April 2009 Notes, which are convertible into 485,667
shares of Common Stock, $38,443.80 of July 2009 Notes, which are
convertible into 384,438 shares of Common Stock, and $19,288.96 of
September 2009 Notes, which are convertible into 192,890 shares of Common
Stock. The fund also holds an April 2009 Warrant to purchase 117,500
shares with an exercise price of $0.50 per share, a July 2009 Warrant to
purchase 42,500 shares with an exercise price of $1.00 per share, which
warrant is not exercisable until January 7, 2010, a July 2009 Warrant to
purchase 77,427 shares with an exercise price of $1.00 per share, which
warrant is not exercisable until March 4, 2010, and a September 2009
Warrant to purchase 48,223 shares with an exercise price of $1.00 per
share, which warrant is not exercisable until March 4, 2010. The
fund also has the right, pursuant to a Securities Purchase Agreement dated
April 2, 2009, to purchase an additional $47,000.00 face amount of the
April 2009 Notes, which are convertible into 470,000 shares of Common
Stock, and a warrant to purchase 117,500 shares with an exercise price of
$0.50 per share. The fund also has the right, pursuant to a Consent
Agreement dated April 2, 2009, and amended on May 22, 2009 and July 7,
2009, to purchase $52,912.50 face amount of the April 2009 Notes, which
are convertible into 529,125 shares of Common Stock. The June 2008
Notes and the April 2009 Notes can only be converted to the extent that,
after such conversion, the Reporting Persons would beneficially own no
more than 4.999% of the Issuer’s Common Stock. The July 2009 Notes
and the September 2009 Notes can only be converted to the extent that,
after such conversion, the Reporting Persons would beneficially own no
more than 9.999% of the Issuer’s Common Stock. The July 2009
Warrants are not exercisable until after January 7, 2010 and March 4,
2010, respectively, and the September 2009 Warrants are not exercisable
until after March 4, 2010, and after each such date, the warrants are only
exercisable to the extent that, after such exercise, the Reporting Persons
would beneficially own no more than 4.999% of the Issuer’s Common
Stock. Additionally, the July 2009 Notes and the September 2009
Notes can only be converted beginning the earlier of (i) two weeks from
the effectiveness of a resale registration statement registering the
common stock underlying such notes and (ii) the date that is six months
following the issuance date. The beneficial ownership total assumes
that this registration statement has been declared effective and the July
2009 Notes and the September 2009 Notes are currently convertible
according to their respective terms. By virtue of their ownership of
entities that have the power to control the investment decisions of the
Baker Bros. Affiliates, Felix J. Baker and Julian C. Baker may each be
deemed to be beneficial owners of shares held or acquirable
by the Baker Bros Affiliates and may be deemed to have
shared power to vote or direct the vote of and shared power to dispose or
direct the disposition of such
securities.
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(4)
|
Arcus Ventures Fund is the
beneficial owner of 14,171,842 shares of Common Stock. The fund owns
5,920,156 shares of Common Stock and $458,321.61 of July 2009 Notes, which
are convertible into 4,583,216 shares of Common Stock. The fund also holds
an April 2009 Warrant to purchase 562,500 shares of Common Stock with an
exercise price of $0.50 per share, a July 2009 Warrant to purchase 202,500
shares with an exercise price of $1.00 per share, which warrant is not
exercisable until January 7, 2010, and a July 2009 Warrant to purchase
1,145,804 shares with an exercise price of $1.00 per share, which warrant
is not exercisable until March 4, 2010. The fund also has the right,
pursuant to a Securities Purchase Agreement dated April 2, 2009, to
purchase an additional $225,000 face amount of the April 2009 Notes, which
are convertible into 2,250,000 shares of Common Stock, and a warrant to
purchase 562,500 shares with an exercise price of $0.50 per share. The
fund also has the right, pursuant to a Consent Agreement dated April 2,
2009, and amended on May 22, 2009 and July 7, 2009, to purchase $778,125
face amount of the April 2009 Notes, which are convertible into 7,781,250
shares of Common Stock. The June 2008 Notes and the April 2009 Notes can
only be converted to the extent that, after such conversion, the Reporting
Persons would beneficially own no more than 4.999% of the Issuer’s Common
Stock. The July 2009 Notes can only be converted to the extent that,
after such conversion, the Reporting Persons would beneficially own no
more than 9.999% of the Issuer’s Common Stock. The July 2009
Warrants are not exercisable until after January 7, 2010 and March 4,
2010, respectively, after each such date, the warrants are only
exercisable to the extent that, after such exercise, the Reporting Persons
would beneficially own no more than 4.999% of the Issuer’s Common
Stock. Additionally, the July 2009 Notes can only be converted
beginning the earlier of (i) two weeks from the effectiveness of a resale
registration statement registering the common stock underlying such notes
and (ii) the date that is six months following the issuance date.
The beneficial ownership total assumes that this registration statement
has been declared effective and the July 2009 Notes are currently
convertible according to their respective terms. As the general partner of
Arcus Ventures Fund, Arcus Ventures Management, LLC may be deemed to be
the beneficial owner of the shares held or acquirable by the fund. As
members of Arcus Ventures Management, LLC, James B. Dougherty and Steven
Soignet may be deemed to be the beneficial owners of the shares held or
acquirable by the fund. Each of Messrs. Dougherty and Soignet disclaims
beneficial ownership of the shares of Common Stock held or acquirable by
the fund, except to the extent of his pecuniary interest
therein.
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(5)
|
Cat Trail Private Equity Fund,
LLC is the beneficial owner of 19,179,170 shares of Common Stock,
comprised of 4,616,163 shares of Common Stock and $450,000 face amount of
April 2009 Notes, which are convertible into 4,500,000 shares of Common
Stock, and $1,078,643.21 face amount of July 2009 Notes, which are
convertible into 10,786,432 shares of Common Stock. The fund also holds an
April 2009 Warrant to purchase 1,125,000 shares with an exercise price of
$0.50 per share, a July 2009 Warrant to purchase 405,000 shares with an
exercise price of $1.00 per share, which warrant is not exercisable until
January 7, 2010, and a July 2009 Warrant to purchase 2,291,608 shares with
an exercise price of $1.00 per share, which warrant is not exercisable
until March 4, 2010. The fund also has the right, pursuant to a Securities
Purchase Agreement dated April 2, 2009, to purchase an additional $450,000
face amount of the April 2009 Notes, which are convertible into 4,500,000
shares of Common Stock, and a warrant to purchase 1,125,000 shares with an
exercise price of $0.50 per share. The fund also has the right, pursuant
to a Consent Agreement dated April 2, 2009, and amended on May 22, 2009
and July 7, 2009, to purchase $1,556,250 face amount of the April 2009
Notes, which are convertible into 15,562,500 shares of Common Stock. The
April 2009 Notes can only be converted to the extent that, after such
conversion, the Reporting Persons would beneficially own no more than
4.999% of the Issuer’s Common Stock. The July 2009 Notes can only be
converted to the extent that, after such conversion, the Reporting Persons
would beneficially own no more than 9.999% of the Issuer’s Common
Stock. The July 2009 Warrants are not exercisable until after
January 7, 2010 and March 4, 2010, respectively, and after each such date,
the warrants are only exercisable to the extent that, after such exercise,
the Reporting Persons would beneficially own no more than 4.999% of the
Issuer’s Common Stock. Additionally, the July 2009 Notes can only be
converted beginning the earlier of (i) two weeks from the effectiveness of
a resale registration statement registering the common stock underlying
such notes and (ii) the date that is six months following the issuance
date. The beneficial ownership total assumes that this registration
statement has been declared effective and the July 2009 Notes are
currently convertible according to their respective terms. David
Dekker, as the managing member of Cat Trail Private Equity, LLC, may be
deemed to beneficially own the shares of Common Stock held or acquirable
by Cat Trail Private Equity, LLC. Mr. Dekker shares voting and dispositive
power over such shares with Cat Trail Private Equity, LLC. Mr. Dekker
disclaims beneficial ownership of all shares reported herein except to the
extent of his pecuniary interest
therein.
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(6)
|
Boxer Capital LLC is the
beneficial owner of 15,491,026 shares of Common Stock, comprised of
5,221,907 shares of Common Stock, $52,500 face amount of April 2009 Notes,
which are convertible into 525,000 shares of Common Stock, $469,868.53 of
July 2009 Notes, which are convertible into 4,698,685 shares of Common
Stock, and $120,371.47 of September 2009 Notes, which are convertible into
1,203,715 shares of Common Stock. The fund also holds a July 2009 Warrant
to purchase 470,000 shares with an exercise price of $1.00 per share,
which warrant is not exercisable until January 7, 2010, a July 2009
Warrant to purchase 1,174,671 shares with an exercise price of $1.00 per
share, which warrant is not exercisable until March 4, 2010, and a
September 2009 Warrant to purchase 300,929 shares with an exercise price
of $1.00 per share, which warrant is not exercisable until March 4, 2010.
The fund also has the right, pursuant to a Securities Purchase Agreement
dated April 2, 2009, to purchase an additional $525,000 face amount of the
April 2009 Notes, which are convertible into 5,250,000 shares of Common
Stock, and a warrant to purchase 1,312,500 shares with an exercise price
of $0.50 per share. The fund also has the right, pursuant to a Consent
Agreement dated April 2, 2009, and amended on May 22, 2009 and July 7,
2009, to purchase $986,943.70 face amount of the April 2009 Notes, which
are convertible into 9,869,437 shares of Common Stock. Each of the April
2009 Notes, April 2009 Warrant, July 2009 Warrant and September 2009
Warrant contains a limitation on conversion/exercise which prevents the
Reporting Persons from such conversion/exercise if, after giving effect to
the conversion/exercise, the Reporting Persons would in the aggregate
beneficially own more than 4.999% of the outstanding shares of Common
Stock. Additionally, the July 2009 Notes and the September 2009
Notes can only be converted beginning the earlier of (i) two weeks from
the effectiveness of a resale registration statement registering the
common stock underlying such notes and (ii) the date that is six months
following the issuance date. The beneficial ownership total column
assumes that this registration statement has been declared effective and
the July 2009 Notes and the September 2009 Notes are currently convertible
according to their respective terms. Boxer Asset Management Inc. is the
managing member and majority owner of Boxer Capital LLC. Joseph Lewis is
the sole indirect owner and controls Boxer Asset Management Inc. Boxer
Capital LLC has shared voting and dispositive power with regard to the
Common Stock, the warrants to purchase Common Stock, and the notes
convertible into shares of Common Stock it owns directly. Boxer
Asset Management Inc. and Joseph Lewis each have shared voting and
dispositive power with regard to the Common Stock owned directly by Boxer
Capital LLC. MVA Investors LLC, II is the independent,
personal investment vehicle of certain employees of Boxer Capital LLC and
Tavistock Life Sciences Company, which is a Delaware corporation and an
affiliate of Boxer Capital LLC. Investment decisions of Boxer Capital LLC
are made by a majority vote of its investment committee. As such,
MVA Investors LLC, II is not controlled by Boxer Capital LLC, Boxer Asset
Management Inc. or Joseph Lewis. MVA Investors LLC, II has
sole voting and dispositive power over the Common Stock, the warrants to
purchase Common Stock and the notes convertible into Common Stock owned by
it. Neither Boxer Capital LLC, Boxer Asset Management Inc. nor Mr. Lewis
have any voting or dispositive power with regard to the Common Shares held
by MVA Investors LLC, II. For more information regarding MVA
Investors LLC, II, see footnote 19 to the Selling Stockholder
table.
|
SHARES
ELIGIBLE FOR FUTURE SALE
As of
December 16, 2009, we had outstanding 191,810,882 shares of common
stock.
Shares
Covered by this Prospectus
All of
the 54,713,329 shares of common stock being registered in this offering may be
sold without restriction under the Securities Act, so long as the registration
statement to which this prospectus is a part is, and remains,
effective.
Rule
144
Under
Rule 144, a person who has beneficially owned restricted shares of our common
stock for at least six months would be entitled to sell their shares provided
that (i) such person is not deemed to have been one of our affiliates at the
time of, or at any time during the three months preceding, a sale; (ii) we are
subject to the Exchange Act reporting requirements for at least 90 days before
the sale; and (iii) if the sale occurs prior to satisfaction of a one-year
holding period, we provide current information at the time of sale.
Persons
who have beneficially owned restricted shares of our common stock or warrants
for at least six months but who are our affiliates at the time of, or at any
time during the three months preceding, a sale, would be subject to additional
restrictions, by which such person would be entitled to sell within any
three-month period only a number of shares that does not exceed the greater
of:
|
•
|
1%
of the total number of shares of the same class then outstanding, which
will equal approximately 1,822,019 shares immediately after this offering;
or
|
|
•
|
the average weekly trading volume
of such shares during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such
sale.
|
provided, in each case, that
we are subject to the Exchange Act periodic reporting requirements for at least
three months before the sale.
However,
since our shares are quoted on the OTC Bulletin Board, which is not an
“automated quotation system,” our stockholders will not be able to rely on the
market-based volume limitation described in the second bullet above. If,
in the future, our securities are listed on an exchange or quoted on NASDAQ,
then our stockholders would be able to rely on the market-based volume
limitation. Unless and until our stock is so listed or quoted, our
stockholders can only rely on the percentage based volume limitation described
in the first bullet above.
Such
sales by affiliates must also comply with the manner of sale, current public
information and notice provisions of Rule 144. The selling stockholders
will not be governed by the foregoing restrictions when selling their shares
pursuant to this prospectus
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Dr.
Daniel Von Hoff, one of our directors, holds the position of Physician in Chief
and Director of Translational Research at the Translational Genomics Research
Institute, or Tgen, which provides preclinical testing services under direction
of and by contract to us. During 2008, Tgen performed services for which it was
compensated by us in the amount of approximately $36,419. We believe that the
payment of these services was on terms no less favorable than would have
otherwise been provided by an ‘‘unrelated’’ party. In the Board’s opinion, Dr.
Von Hoff’s relationship with Tgen will not interfere with Dr. Von Hoff’s
exercise of independent judgment in carrying out his responsibilities as our
Director.
We have
set forth certain policies and procedures with respect to the review and
approval of related-party transactions. Specifically, pursuant to our Audit
Committee Charter, the Audit Committee is required to review and approve any
related-party transactions. In connection with such review and approval, the
Audit Committee may retain special legal, accounting or other advisors and may
request any of our officers or employees or our outside counsel or independent
auditors to meet with any members of, or advisors to, the Audit Committee as
well as perform any other activities consistent with the Audit Committee
Charter, our by-laws, and governing law, as the Audit Committee or the Board
deems necessary or appropriate.
On June
5, 2008, we entered into a securities purchase agreement with certain
institutional and accredited investors to place up to $40 million of senior
secured convertible notes with such investors. On June 9, 2008, we placed $20
million of such notes in an initial closing. Each of Dr. Raymond Warrell, our
Chief Executive Officer and Chairman, and Dr. Loretta Itri, our President,
Pharmaceutical Development and Chief Medical Officer, participated in the
initial closing by purchasing $1,950,000 and $300,000, respectively, of such
notes. The remaining Board members independently discussed Dr. Warrell and Dr.
Itri’s participation in the transaction and resolved that such participation
will not interfere with Dr. Warrell or Dr. Itri’s exercise of independent
judgment in carrying out their responsibilities in their respective positions.
In connection with the June 2008 convertible note financing and in accordance
with the Audit Committee Charter, the Audit Committee reviewed and approved the
June 2008 convertible note financing with Dr. Warrell and Dr.
Itri.
DESCRIPTION
OF CAPITAL STOCK
General
Our
authorized capital stock consists of 6,000,000,000 shares of common stock and
5,000,000 shares of preferred stock.
The
following descriptions are summaries of the material terms of our restated
certificate of incorporation and bylaws. Reference is made to the more detailed
provisions of, and the descriptions are qualified in their entirety by reference
to, the restated certificate of incorporation and bylaws and applicable law. Our
restated certificate of incorporation, as amended and our amended and restated
bylaws are incorporated by reference and copies are available upon request. See
“How to Get More Information” in this prospectus.
Common
Stock
Except as
required by law or by the restated certificate of incorporation, holders of
common stock are entitled to one vote for each share held of record on all
matters submitted to a vote of the stockholders. Subject to preferences that may
be applicable to any then outstanding preferred stock, holders of common stock
are entitled to receive ratably such dividends as may be declared by the Board
of Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of Genta, holders of our common stock and
our preferred stock are entitled to share ratably on an as-converted basis in
all assets remaining after payment of liabilities and the liquidation preference
of any then outstanding preferred stock. Holders of common stock have no right
to convert their common stock into any other securities. There are no redemption
or sinking fund provisions applicable to the common stock. All outstanding
shares of common stock are fully paid and non-assessable.
In
September 2005, the Board of Directors adopted a Stockholder Rights Plan and
declared a dividend of one preferred stock purchase right, or Right, for each
outstanding share of our common stock, payable to holders of record as of the
close of business on September 27, 2005. In addition, Rights shall be issued in
respect of all shares of common stock issued after such date, including the
shares issued hereunder, pursuant to the Plan. Generally, the rights become
exercisable upon the earlier of the close of business on the tenth business day
following the first public announcement that any person or group has become a
beneficial owner of 15% or more of our common stock and the close of business on
the tenth business day after the date of the commencement of a tender or
exchange offer by any person which would, if consummated, result in such person
becoming a beneficial owner of 15% or more of the our common stock. Each Right
shall be exercisable to purchase, for $25.00, subject to adjustment, one
one-hundredth of a newly registered share of Series G Participating Cumulative
Preferred Stock, par value $0.001 per share of the Company. The terms and
conditions of the Rights are set forth in a Rights Agreement dated September 20,
2005 between the Company and Mellon Investor Services, LLC, as Rights
Agent.
Preferred
Stock
The Board
of Directors has the authority, without further action by the stockholders, to
issue up to 5,000,000 shares of preferred stock in one or more series and to fix
the rights, preferences, privileges and restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of redemption, liquidation
preferences and the number of shares constituting any series or the designation
of such series. The issuance of preferred stock could adversely affect the
voting power of holders of common stock and could have the effect of delaying,
deferring or preventing a change in control of Genta without further action by
the stockholders and may adversely affect the voting and other rights of the
holders of our common stock.
Series
A Convertible Preferred Stock
We are
authorized to issue 600,000 shares of Series A Convertible Preferred Stock. At
September 30, 2009, we had 7,700 shares of Series A Convertible Preferred Stock
issued and outstanding.
Each
share of Series A Convertible Preferred Stock is immediately convertible, into
shares of our common stock, at a rate determined by dividing the aggregate
liquidation preference of the series A convertible preferred stock by the
conversion price. The conversion price is subject to adjustment for
anti-dilution.
In the
event of a liquidation of Genta, the holders of Series A Convertible Preferred
Stock are entitled to a liquidation preference equal to $50.00 per
share.
Series
G Participating Cumulative Preferred Stock
Two
million shares of our Preferred Stock have been designated as Series G
Participating Cumulative Preferred Stock, none of which are issued and
outstanding. The Series G Participating Cumulative Preferred Stock are subject
to the Stockholder Rights Plan described above.
15%
Senior Secured Convertible Notes
On June
5, 2008, we entered into a securities purchase agreement with certain
institutional and accredited investors, to place up to $40 million of senior
secured convertible notes, referred to herein as the notes, with such investors.
On June 9, 2008, we placed $20 million of such notes in the initial closing. The
notes bear interest at an annual rate of 15%, currently payable at quarterly
intervals in payment-in-kind notes, and after adjusting for the April 2, 2009
Notes, are convertible into shares of our common stock at a conversion rate of
10,000 shares of common stock for every $1,000.00 of principal. Until February
17, 2009, the holders of the notes had the right, but not the obligation, to
purchase in whole or in part up to an additional $20 million of notes. We have
the right to force conversion of the notes in whole or in part on any date after
December 31, 2009 if the closing bid price of our common stock exceeds $0.50 for
a period of 10 consecutive trading days and certain other conditions are
met.
On
February 17, 2009, we amended the 2008 Notes to delete the second tranche option
to purchase an additional $20 million of 2008 Notes.
Certain
members of our senior management participated in the initial
closing.
The
issuance of common stock upon conversion of the convertible notes has adversely
affected the voting power of remaining holders of common stock and could result
in a change in control of Genta without further action by the
stockholders.
8%
Senior Secured Convertible Notes
On April
2, 2009, we entered into a securities purchase agreement with certain
institutional and accredited investors, to place up to $12 million of senior
secured convertible notes, referred to herein as the notes, with such investors.
The Company closed with gross proceeds of approximately $6 million. The notes
bear interest at an annual rate of 8% payable semi-annually and payable in kind
at quarterly intervals in stock or cash at our option, and are convertible into
shares of our common stock at a conversion rate of 10,000 shares of common stock
for every $1,000.00 of principal. We have the right to force conversion of the
notes in whole or in part on any date after December 31, 2009 if the daily
volume weighted average price of our common stock exceeds $0.50 for a period of
10 consecutive trading days and certain other conditions are met.
8%
Unsecured Subordinated Convertible Notes
On July
7, 2009, the Company entered into a securities purchase agreement with certain
institutional and accredited investors, to place up to $10 million of Units,
each unit consisting of (i) 70% unsecured subordinated convertible notes, or the
July 2009 Notes, and (ii) 30% shares of the Company’s common stock. The
Company also issued to the investors two-year warrants to purchase common stock
in an amount equal to 25% of the number of shares of common stock issuable upon
conversion of the July 2009 Notes purchased by each investor. The Company
closed with gross proceeds of $3 million. The July 2009 Notes bear interest at
an annual rate of 8% payable semi-annually in cash or other July 2009 Notes, and
are convertible into shares of our common stock at a conversion rate of 10,000
shares of common stock for every $1,000.00 of principal. We have the right
to force conversion of the July 2009 Notes, in whole or in part on any date
after January 1, 2010 if the daily volume weighted average price of the
Company’s common stock exceeds $0.50 for a period of 10 consecutive trading days
and certain other conditions are met.
On August
6, 2009 and August 24, 2009, the Company entered into amendment agreements
whereby, among other things, certain accredited institutional investors who were
parties to the July 2009 securities purchase agreement agreed to permit us to
raise up to $10 million through the sale of additional shares of common stock,
July 2009 Notes and warrants at an additional closing under the July 7, 2009
Securities Purchase Agreement, increasing the aggregate amount that we may raise
to $13 million, and delaying our obligations to file a registration statement
covering the shares of common stock and shares of common stock underlying the
July 2009 Notes and warrants that were issued on July 7, 2009.
On
September 4, 2009, the Company entered into a consent and amendment agreement
whereby, among other things, certain accredited institutional investors who were
parties to the July 2009 securities purchase agreement agreed to decrease the
amount we could raise under the July 2009 securities purchase agreement to $10
million in the aggregate and delay our obligation to file a registration
statement covering the shares of common stock and shares of common stock
underlying the July 2009 Notes and July 2009 Warrants. On that same date,
we closed on $7 million of additional July 2009 Notes, common stock and July
2009 Warrants.
Also on
September 4, 2009, the Company entered into a securities purchase agreement with
certain accredited institutional investors, pursuant to which we issued $3
million of units consisting of (i) 70% September 2009 Notes, and (ii) 30% common
stock, or the September 2009 financing. In connection with the sale of the
units, we also issued to the investors September 2009 Warrants. Pursuant
to the terms of the securities purchase agreement, the investors had four
business days from the date of the agreement to sign the agreement and provide
their respective investment to the Company. Certain investors chose not to
participate, and therefore, all of the investors who chose to participate in the
September 2009 financing agreed to a revised allocation of the $3 million
investment among the investors.
Delaware
Anti-Takeover Law
Under
Section 203 of the Delaware General Corporation Law certain “business
combinations” between a Delaware corporation, whose stock generally is publicly
traded or held of record by more than 2,000 stockholders, and an “interested
stockholder” are prohibited for a three-year period following the date that such
stockholder became an interested stockholder, unless:
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the corporation has elected in
its certificate of incorporation not to be governed by Section 203 (we
have not made such an
election);
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either the business combination
or the transaction which resulted in the stockholder becoming an
interested stockholder was approved by the board of directors of the
corporation before the other party to the business combination became an
interested stockholder;
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•
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upon consummation of the
transaction that made it an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the commencement of the transaction excluding voting stock
owned by directors who are also officers or held in employee benefit plans
in which the employees do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer;
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•
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on or subsequent to such date the
business combination is approved by the board of directors and authorized
at an annual or special meeting of stockholders by the affirmative vote of
at least 66-2/3% of the outstanding voting stock which is not owned by the
interested stockholder.
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The
three-year prohibition also does not apply to certain business combinations
proposed by an interested stockholder following the announcement or notification
of certain extraordinary transactions involving the corporation and a person who
had not been an interested stockholder during the previous three years or who
became an interested stockholder with the approval of a majority of the
corporation’s directors. A “business combination” is defined to include mergers,
asset sales and other transactions resulting in financial benefit to a
stockholder. In general, an “interested stockholder” is a person who, together
with affiliates and associates, owns (or within three years, did own) 15% or
more of a corporation’s voting stock.
The
statute could prohibit or delay mergers or other takeover or change in control
attempts with respect to us and, accordingly, may discourage attempts to acquire
us even though such a transaction may offer our stockholders the opportunity to
sell their stock at a price above the prevailing market price.
Advance
Notice Requirements for Stockholder Proposals
Our
amended and restated bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for election
as directors at an annual meeting of stockholders, must provide timely notice
thereof in writing. To be timely, a stockholder’s notice must be delivered to
the secretary at our principal executive offices not less than 50 calendar days
nor more than 75 calendar days prior to the meeting; provided, that if less than
65 days’ notice or prior public disclosure of the date of the meeting is given
or made to stockholders, notice by the stockholder to be timely must be received
not later than the close of business on the 15th day following the day on which
notice of the date of the annual meeting was mailed or such public disclosure
was made. Our amended and restated bylaws also specify requirements as to the
form and content of a stockholder’s notice. These provisions may discourage
stockholders from bringing matters before an annual meeting of stockholders or
from making nominations for directors at an annual meeting of
stockholders.
Transfer
Agent Information
Our
transfer agent is BNY Mellon Securities LLC.
PLAN
OF DISTRIBUTION
Each
selling stockholder of the common stock and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on the OTC Bulletin Board or any other stock exchange, market or
trading facility on which the shares are traded or in private
transactions. These sales may be at fixed or negotiated prices. A
selling stockholder may use any one or more of the following methods when
selling shares:
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ordinary brokerage transactions
and transactions in which the broker-dealer solicits
purchasers;
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block trades in which the
broker-dealer will attempt to sell the shares as agent, but may position
and resell a portion of the block as principal to facilitate the
transaction;
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purchases by a broker-dealer as
principal and resale by the broker-dealer for its
account;
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an exchange distribution in
accordance with the rules of the applicable
exchange;
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privately negotiated
transactions;
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broker-dealers may agree with the
selling stockholders to sell a specified number of such shares at a
stipulated price per share;
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through the writing or settlement
of options or other hedging transactions, whether through an options
exchange or otherwise;
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a combination of any such methods
of sale; and
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any other method permitted by
applicable law.
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The
selling stockholders may also sell shares under Rule 144 under the Securities
Act, if available, rather than under this prospectus.
Broker-dealers
engaged by the selling stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts
from the selling stockholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated, but,
except as set forth in a supplement to this prospectus, in the case of an agency
transaction not in excess of a customary brokerage commission in compliance with
NASDR Rule 2440; and in the case of a principal transaction a markup or markdown
in compliance with NASDR IM-2440.
In
connection with the sale of the common stock or interests therein, the selling
stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The
selling stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Each selling
stockholder has informed the Company that it does not have any written or oral
agreement or understanding, directly or indirectly, with any person to
distribute the common stock. In no event shall any broker-dealer receive fees,
commissions and markups which, in the aggregate, would exceed eight percent
(8%).
The
Company is required to pay certain fees and expenses incurred by the Company
incident to the registration of the shares. The Company has agreed to
indemnify the selling stockholders against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.
Because
selling stockholders may be deemed to be “underwriters” within the meaning of
the Securities Act, they will be subject to the prospectus delivery requirements
of the Securities Act including Rule 172 thereunder. In addition, any
securities covered by this prospectus which qualify for sale pursuant to Rule
144 under the Securities Act may be sold under Rule 144 rather than under this
prospectus. There is no underwriter or coordinating broker acting in
connection with the proposed sale of the resale shares by the selling
stockholders.
We agreed
to keep this prospectus effective until the earlier of (i) the date on which the
shares may be resold by the selling stockholders without registration and
without regard to any volume limitations by reason of Rule 144 under the
Securities Act or any other rule of similar effect or (ii) all of the shares
have been sold pursuant to this prospectus or Rule 144 under the Securities Act
or any other rule of similar effect. The resale shares will be sold only
through registered or licensed brokers or dealers if required under applicable
state securities laws. In addition, in certain states, the resale shares may not
be sold unless they have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement is
available and is complied with.
Under
applicable rules and regulations under the Exchange Act, any person engaged in
the distribution of the resale shares may not simultaneously engage in market
making activities with respect to the common stock for the applicable restricted
period, as defined in Regulation M, prior to the commencement of the
distribution. In addition, the selling stockholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including Regulation M, which may limit the timing of purchases and
sales of shares of the common stock by the selling stockholders or any other
person. We will make copies of this prospectus available to the selling
stockholders and have informed them of the need to deliver a copy of this
prospectus to each purchaser at or prior to the time of the sale (including by
compliance with Rule 172 under the Securities Act).
LEGAL
MATTERS
Certain
legal matters with respect to the validity of shares of our common stock being
offered hereby will be passed on for us by Morgan, Lewis & Bockius LLP,
Princeton, New Jersey.
EXPERTS
The
consolidated financial statements as of and for the year ended December 31,
2008, and for the effects of the 1-for-50 reverse stock split on the 2007 and
2006 consolidated financial statements included in this prospectus have been
audited by Amper, Politziner & Mattia, LLP, an independent registered public
accounting firm, as stated in their report appearing herein and elsewhere in the
registration statement (which report expresses an unqualified opinion on the
consolidated financial statements and includes an explanatory paragraph relating
to Genta Incorporated’s ability to continue as a going concern). Such
consolidated financial statements have been so included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
The
consolidated financial statements as of December 31, 2007, and for each of the
two years in the period ended December 31, 2007 (prior to the effects of the
2009 reverse stock split), not presented herein, have been audited by
Deloitte & Touche LLP, an independent registered public accounting firm, as
stated in their report appearing herein and elsewhere in the registration
statement (which report expresses an unqualified opinion on the consolidated
financial statements and includes explanatory paragraphs relating to (1) Genta
Incorporated’s ability to continue as a going concern; (2) the adoption of
Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income
Taxes — an Interpretation of FASB Statement No.
109, effective January 1, 2007 ); and (3) Deloitte & Touche LLP was
not engaged to audit, review, or apply any procedures to the adjustments to
retrospectively apply the effects of the 2009 reverse stock split and,
accordingly, does not express an opinion or any other form of assurance about
whether such retrospective adjustments are appropriate and have been properly
applied. Those retrospective adjustments were audited by other auditors).
Such report has been so included in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
HOW
TO GET MORE INFORMATION
We have
filed with the SEC a registration statement on Form S-1 under the Securities Act
with respect to the securities offered by this prospectus. This prospectus,
which forms a part of the registration statement, does not contain all the
information set forth in the registration statement, as permitted by the rules
and regulations of the SEC. For further information with respect to us and the
securities offered by this prospectus, reference is made to the registration
statement. Statements contained in this prospectus as to the contents of any
contract or other document that we have filed as an exhibit to the registration
statement are qualified in their entirety by reference to the exhibits for a
complete statement of their terms and conditions. The registration statement and
other information may be read and copied at the SEC’s Public Reference Room at
100 F Street N.E., Washington, D.C. 20549. The public may obtain information on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC maintains a web site at http://www.sec.gov that contains reports, proxy
and information statements, and other information regarding issuers that file
electronically with the SEC.
We will
also send you copies of the material we file with the SEC, free of charge, upon
your request. Please call or write our Investor Relations department
at:
Genta
Incorporated
Attention:
Investor Relations
200
Connell Drive
Berkeley
Heights, NJ 07922
(908)
286-9800
We make
available free of charge on our internet website (http://www.genta.com) our
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and amendments to these reports filed or furnished pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably
practicable after we electronically file such material with, or furnish it to,
the Securities and Exchange Commission. Our website and the information
contained therein or connected thereto shall not be deemed to be incorporated
into this prospectus or the registration statement of which it forms a
part.
Genta
Incorporated
INDEX
TO FINANCIAL STATEMENTS
At
December 31, 2008
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Reports
of Independent Registered Public Accounting Firms
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F-2
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Consolidated
Balance Sheets as of December 31, 2008 and 2007
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F-4
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Consolidated
Statements of Operations for the years ended December 31, 2008, 2007 and
2006
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F-5
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Consolidated
Statements of Stockholders’ (Deficit) /Equity for the years ended December
31, 2008, 2007 and 2006
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F-6
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Consolidated
Statements of Cash Flows for the years ended December 31, 2008, 2007 and
2006
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F-7
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Notes
to Consolidated Financial Statements
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F-8
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At
September 30, 2009
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Consolidated
Balance Sheets as of September 30, 2009 (unaudited) and December 31,
2008
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F-28
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Consolidated
Statements of Operations (unaudited) for three and six months ended
September 30, 2009 and 2008
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F-29
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Consolidated
Statements of Cash Flows (unaudited) for three and six months ended
September 30, 2009 and 2008
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F-30
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Notes
to Consolidated Financial Statements
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F-31
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REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
Genta
Incorporated and Subsidiaries
We have
audited the accompanying consolidated balance sheet of Genta Incorporated and
Subsidiaries (the “Company”) as of December 31 2008, and the related
consolidated statement of operations, stockholders’ (deficit) equity, and cash
flows for the year then ended. 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 audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Genta Incorporated and
Subsidiaries as of December 31, 2008, and the results of their operations and
their cash flows for the year then ended December 31, 2008, in conformity with
U.S. generally accepted accounting principles.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements, the Company’s recurring losses from
operations and negative cash flows from operations raise substantial doubt about
its ability to continue as a going concern. Management’s plans considering
these matters are also described in Note 1 to the consolidated financial
statements. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
We have
also audited the retroactive adjustments to the 2007 and 2006 consolidated
financial statements for the one-for-fifty reverse common stock split in 2009,
which is described in Note 1 to the consolidated financial statements. In
our opinion, such retrospective adjustments are appropriate and have been
properly applied. However, we were not engaged to audit, review or apply
any procedures to the 2007 and 2006 consolidated financial statements of the
Company other than with respect to the retrospective adjustments and,
accordingly, we do not express an opinion or any other form of assurance on the
2007 and 2006 consolidated financial statements taken as a whole.
/s/
Amper, Politziner & Mattia, LLP
Edison,
New Jersey
February
12, 2009, except for the effects of the retroactive adjustment for the
one-for-fifty reverse common stock split described in Note 1 to the Consolidated
Financial Statements, which the date is June 26, 2009
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of Genta Incorporated:
We have
audited, before the effects of the adjustments to retrospectively apply the
reverse stock split discussed in Note 1 to the consolidated financial
statements, the accompanying consolidated balance sheet of Genta Incorporated
and subsidiaries (the “Company”) as of December 31, 2007, and the related
consolidated statements of operations, stockholders’ (deficit) equity, and cash
flows for the years ended December 31, 2007 and 2006 (the 2007 and 2006
consolidated financial statements before the effects of the adjustments
discussed in Note 1 to the consolidated financial statements are not presented
herein). These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, such 2007 and 2006 consolidated financial statements, before the
effects of the adjustments to retrospectively apply the reverse stock split
discussed in Note 1 to the consolidated financial statements, present fairly, in
all material respects, the financial position of Genta Incorporated and
subsidiaries as of December 31, 2007, and the results of their operations and
their cash flows for the years ended December 31, 2007 and 2006, in conformity
with accounting principles generally accepted in the United States of
America.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company’s recurring losses from
operations and negative cash flows from operations raise substantial doubt about
its ability to continue as a going concern. Management’s plans concerning these
matters are also described in Note 1 to the consolidated financial statements.
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
As
discussed in Note 2 to the consolidated financial statements, the Company
adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an
Interpretation of FASB Statement No. 109 , effective January 1,
2007.
We were
not engaged to audit, review, or apply any procedures to the adjustments to
retrospectively apply the effects of the reverse stock split discussed in Note 1
to the consolidated financial statements and, accordingly, we do not express an
opinion or any other form of assurance about whether such retrospective
adjustments are appropriate and have been properly applied. Those retrospective
adjustments were audited by other auditors.
/s/
DELOITTE & TOUCHE LLP
Parsippany,
New Jersey
March 17,
2008
GENTA
INCORPORATED
CONSOLIDATED
BALANCE SHEETS
(In thousands, except par value)
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December 31,
2008
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December 31,
2007
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ASSETS
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Current
assets:
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Cash
and cash equivalents
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$
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4,908
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$
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5,814
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Marketable
securities (Note 3)
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—
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1,999
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Accounts
receivable — net of allowances of $12 at December 31, 2008 and $38 at
December 31, 2007
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2
|
|
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31
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Inventory
(Note 4)
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121
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|
225
|
|
Prepaid
expenses and other current assets (Note 6)
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973
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19,170
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Total
current assets
|
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6,004
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27,239
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Property
and equipment, net (Note 7)
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300
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323
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Deferred
financing costs on convertible note financing (Note 11)
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911
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—
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Deferred
financing costs — warrant (Note 11)
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5,478
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—
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|
Other
assets (Note 5)
|
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—
|
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1,731
|
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Total
assets
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$
|
12,693
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$
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29,293
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|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ (DEFICIT)/EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses (Note 6 and Note 9)
|
|
$
|
11,224
|
|
|
$
|
25,850
|
|
Notes
payable (Note 10)
|
|
|
—
|
|
|
|
512
|
|
Total
current liabilities
|
|
|
11,224
|
|
|
|
26,362
|
|
Long-term
liabilities:
|
|
|
|
|
|
|
|
|
Office
lease settlement obligation (Note 5)
|
|
|
1,979
|
|
|
|
—
|
|
Convertible
notes due June 9, 2010, $15,540 outstanding, net of debt discount of
($11,186) (Note 11)
|
|
|
4,354
|
|
|
|
—
|
|
Total
long-term liabilities
|
|
|
6,333
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note 18)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
(deficit)/equity (Note 13):
|
|
|
|
|
|
|
|
|
Preferred
stock, 5,000 shares authorized:
|
|
|
|
|
|
|
|
|
Series
A convertible preferred stock, $.001 par value; 8 shares issued and
outstanding, liquidation value of $385 at December 31, 2008 and December
31, 2007, respectively
|
|
|
—
|
|
|
|
—
|
|
Series
G participating cumulative preferred stock, $.001 par value; 0 shares
issued and outstanding at December 31, 2008 and December 31, 2007,
respectively
|
|
|
—
|
|
|
|
—
|
|
Common
stock, $.001 par value; 6,000,000 and 250,000 shares authorized 9,734 and
611 shares issued and outstanding at December 31, 2008 and December 31,
2007, respectively
|
|
|
10
|
|
|
|
1
|
|
Additional
paid-in capital
|
|
|
939,252
|
|
|
|
441,189
|
|
Accumulated
deficit
|
|
|
(944,126
|
)
|
|
|
(438,288
|
)
|
Accumulated
other comprehensive income
|
|
|
—
|
|
|
|
29
|
|
Total
stockholders’ (deficit)/equity
|
|
|
(4,864
|
)
|
|
|
2,931
|
|
Total
liabilities and stockholders’ (deficit)/equity
|
|
$
|
12,693
|
|
|
$
|
29,293
|
|
See
accompanying notes to consolidated financial statements.
GENTA
INCORPORATED
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
Years Ended December 31,
|
|
(In thousands, except per share data)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Product
sales — net
|
|
$
|
363
|
|
|
$
|
580
|
|
|
$
|
708
|
|
Cost
of goods sold
|
|
|
102
|
|
|
|
90
|
|
|
|
108
|
|
Gross
margin
|
|
|
261
|
|
|
|
490
|
|
|
|
600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
19,991
|
|
|
|
13,491
|
|
|
|
28,064
|
|
Selling,
general and administrative
|
|
|
10,452
|
|
|
|
16,865
|
|
|
|
25,152
|
|
Settlement
of office lease obligation (Note 5)
|
|
|
3,307
|
|
|
|
—
|
|
|
|
—
|
|
Provision
for settlement of litigation (Note 6 and Note 18)
|
|
|
(340
|
)
|
|
|
(4,240
|
)
|
|
|
5,280
|
|
Write-off
of prepaid royalty (Note 8)
|
|
|
—
|
|
|
|
—
|
|
|
|
1,268
|
|
Total
operating expenses
|
|
|
33,410
|
|
|
|
26,116
|
|
|
|
59,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
(expense)/income, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on maturity of marketable securities
|
|
|
31
|
|
|
|
159
|
|
|
|
310
|
|
Interest
income and other income, net
|
|
|
252
|
|
|
|
837
|
|
|
|
1,216
|
|
Interest
expense
|
|
|
(1,718
|
)
|
|
|
(160
|
)
|
|
|
(72
|
)
|
Amortization
of deferred financing costs and debt discount (Note 11)
|
|
|
(11,229
|
)
|
|
|
—
|
|
|
|
—
|
|
Fair
value — conversion feature liability (Note 11)
|
|
|
(460,000
|
)
|
|
|
—
|
|
|
|
—
|
|
Fair
value — warrant liability (Note 11)
|
|
|
(2,000
|
)
|
|
|
—
|
|
|
|
—
|
|
Total
other (expense)/income, net
|
|
|
(474,664
|
)
|
|
|
836
|
|
|
|
1,454
|
|
Loss
before income taxes
|
|
|
(507,813
|
)
|
|
|
(24,790
|
)
|
|
|
(57,710
|
)
|
Income
tax benefit (Note 12)
|
|
|
1,975
|
|
|
|
1,470
|
|
|
|
929
|
|
Net
loss
|
|
$
|
(505,838
|
)
|
|
$
|
(23,320
|
)
|
|
$
|
(56,781
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per basic and diluted common share
|
|
$
|
(455.09
|
)
|
|
$
|
(39.36
|
)
|
|
$
|
(125.88
|
)
|
Shares
used in computing net loss per basic and diluted common
share
|
|
|
1,112
|
|
|
|
592
|
|
|
|
451
|
|
See
accompanying notes to consolidated financial statements.
GENTA
INCORPORATED
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ (DEFICIT)/EQUITY
For
the Years Ended December 31, 2008, 2007 and 2006
|
|
Convertible
Preferred Stock
|
|
|
Common Stock
|
|
|
Additional
Paid-in
|
|
|
Accumulated
|
|
|
Accumulated
Other
Comprehensive
Income
|
|
|
Total
Stockholders’
(Deficit)/
|
|
(In thousands)
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
(Loss)
|
|
|
Equity
|
|
Balance
at January 1, 2006
|
|
|
10
|
|
|
$
|
—
|
|
|
|
381
|
|
|
$
|
|
|
|
$
|
373,824
|
|
|
$
|
(358,187
|
)
|
|
$
|
60
|
|
|
$
|
15,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(56,781
|
)
|
|
|
—
|
|
|
|
(56,781
|
)
|
Net
change in value of marketable securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(29
|
)
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock, net of issuance costs of $3,125
|
|
|
—
|
|
|
|
—
|
|
|
|
63
|
|
|
|
|
|
|
|
37,725
|
|
|
|
—
|
|
|
|
—
|
|
|
|
37,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock in connection with conversion of Series A preferred
stock
|
|
|
(2
|
)
|
|
|
—
|
|
|
|
—-
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock, net of issuance costs of $925
|
|
|
—
|
|
|
|
—
|
|
|
|
67
|
|
|
|
—
|
|
|
|
14,875
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock in connection with exercise of stock
options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
156
|
|
|
|
—
|
|
|
|
—
|
|
|
|
156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,999
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
|
8
|
|
|
|
—
|
|
|
|
511
|
|
|
|
|
|
|
|
429,579
|
|
|
|
(414,968
|
)
|
|
|
31
|
|
|
|
14,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(23,320
|
)
|
|
|
—
|
|
|
|
(23,320
|
)
|
Net
change in value of marketable securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock, net of issuance costs of $562
|
|
|
—
|
|
|
|
—
|
|
|
|
100
|
|
|
|
1
|
|
|
|
10,237
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,373
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
|
8
|
|
|
|
—
|
|
|
|
611
|
|
|
|
1
|
|
|
|
441,189
|
|
|
|
(438,288
|
)
|
|
|
29
|
|
|
|
2,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(505,838
|
)
|
|
|
—
|
|
|
|
(505,838
|
)
|
Net
change in value of marketable securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(29
|
)
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock, net of issuance costs of $183
|
|
|
—
|
|
|
|
—
|
|
|
|
123
|
|
|
|
|
|
|
|
2,876
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock as interest payment on Senior Convertible Promissory
Note
|
|
|
—
|
|
|
|
—
|
|
|
|
80
|
|
|
|
|
|
|
|
647
|
|
|
|
—
|
|
|
|
—
|
|
|
|
647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock on voluntary conversions of Senior Convertible Promissory
Note
|
|
|
—
|
|
|
|
—
|
|
|
|
8,920
|
|
|
|
9
|
|
|
|
4,451
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer
of warrant liability to paid-in-capital
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,600
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer
conversion feature liability to paid-in-capital
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
480,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
480,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting
of restricted stock
|
|
|
—
|
|
|
|
—
|
|
|
|
-
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
489
|
|
|
|
—
|
|
|
|
—
|
|
|
|
489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2008
|
|
|
8
|
|
|
$
|
—
|
|
|
|
9,734
|
|
|
$
|
10
|
|
|
$
|
939,252
|
|
|
$
|
(944,126
|
)
|
|
$
|
—
|
|
|
$
|
(4,864
|
)
|
See
accompanying notes to consolidated financial statements.
GENTA
INCORPORATED
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
Years Ended December 31,
|
|
(In thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Operating
activities:
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(505,838
|
)
|
|
$
|
(23,320
|
)
|
|
$
|
(56,781
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
154
|
|
|
|
170
|
|
|
|
942
|
|
Loss
on disposition of equipment
|
|
|
10
|
|
|
|
—
|
|
|
|
—
|
|
Amortization
of deferred financing costs and debt discount (Note 11)
|
|
|
11,229
|
|
|
|
—
|
|
|
|
—
|
|
Share-based
compensation (Note 14)
|
|
|
489
|
|
|
|
1,373
|
|
|
|
2,999
|
|
Provision
for sales returns
|
|
|
79
|
|
|
|
(133
|
)
|
|
|
(300
|
)
|
Gain
on maturity of marketable securities
|
|
|
(31
|
)
|
|
|
(159
|
)
|
|
|
(310
|
)
|
Interest
payment settled in shares of common stock (Note 19)
|
|
|
647
|
|
|
|
—
|
|
|
|
—
|
|
Provision
for settlement of litigation, net (Note 6)
|
|
|
(340
|
)
|
|
|
(4,240
|
)
|
|
|
5,280
|
|
Write-off
of prepaid royalty (Note 8)
|
|
|
—
|
|
|
|
—
|
|
|
|
1,268
|
|
Change
in fair value — conversion feature liability (Note 11)
|
|
|
460,000
|
|
|
|
—
|
|
|
|
—
|
|
Change
in fair value — warrant liability (Note 11)
|
|
|
2,000
|
|
|
|
—
|
|
|
|
—
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
Accounts
receivable
|
|
|
29
|
|
|
|
(14
|
)
|
|
|
42
|
|
Inventory
|
|
|
104
|
|
|
|
83
|
|
|
|
88
|
|
Prepaid
expenses and other current assets
|
|
|
198
|
|
|
|
627
|
|
|
|
(142
|
)
|
Accounts
payable and accrued expenses
|
|
|
5,615
|
|
|
|
(6,071
|
)
|
|
|
2,264
|
|
Other
assets
|
|
|
—
|
|
|
|
(42
|
)
|
|
|
(40
|
)
|
Net
cash used in operating activities
|
|
|
(25,655
|
)
|
|
|
(31,726
|
)
|
|
|
(44,690
|
)
|
Investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of marketable securities
|
|
|
—
|
|
|
|
(13,900
|
)
|
|
|
(56,784
|
)
|
Maturities
of marketable securities
|
|
|
2,000
|
|
|
|
32,000
|
|
|
|
49,091
|
|
Release
of restricted cash deposits (Note 5)
|
|
|
1,731
|
|
|
|
—
|
|
|
|
—
|
|
Purchase
of property and equipment
|
|
|
(141
|
)
|
|
|
(222
|
)
|
|
|
(136
|
)
|
Net
cash provided by (used in) investing activities
|
|
|
3,590
|
|
|
|
17,878
|
|
|
|
(7,829
|
)
|
Financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
proceeds from sale of common stock, net (Note 13)
|
|
|
2,876
|
|
|
|
10,238
|
|
|
|
52,691
|
|
Issuance
of note payable (Note 10)
|
|
|
—
|
|
|
|
1,155
|
|
|
|
1,174
|
|
Repayments
of note payable (Note 10)
|
|
|
(512
|
)
|
|
|
(1,285
|
)
|
|
|
(1,261
|
)
|
Issuance
of convertible notes net of financing cost of $1,205 (Note
11)
|
|
|
18,795
|
|
|
|
—
|
|
|
|
—
|
|
Issuance
of common stock upon exercise of stock options (Note 15)
|
|
|
—
|
|
|
|
—
|
|
|
|
155
|
|
Net
cash provided by financing activities
|
|
|
21,159
|
|
|
|
10,108
|
|
|
|
52,759
|
|
Increase
(decrease) in cash and cash equivalents
|
|
|
(906
|
)
|
|
|
(3,740
|
)
|
|
|
240
|
|
Cash
and cash equivalents at beginning of year
|
|
|
5,814
|
|
|
|
9,554
|
|
|
|
9,314
|
|
Cash
and cash equivalents at end of year
|
|
$
|
4,908
|
|
|
$
|
5,814
|
|
|
$
|
9,554
|
|
See
accompanying notes to consolidated financial statements.
GENTA
INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the years ended December 31, 2008, 2007 and 2006
1.
Organization and Business
Genta
Incorporated (“Genta” or the “Company”) is a biopharmaceutical company engaged
in pharmaceutical (drug) research and development, its sole reportable segment.
The Company is dedicated to the identification, development and
commercialization of novel drugs for the treatment of cancer and related
diseases.
The
Company has had recurring annual operating losses since its inception.
Management expects that such losses will continue at least until its lead
product, Genasense® (oblimersen sodium) Injection, receives approval for and
begins commercial sale in one or more indications. Achievement of profitability
for the Company is currently dependent on the timing of Genasense® regulatory
approval. Any adverse events with respect to approvals by the U.S. Food and Drug
Administration (‘‘FDA’’) and/or European Medicines Agency (‘‘EMEA’’) could
negatively impact the Company’s ability to obtain additional funding or identify
potential partners.
The
Company has prepared its financial statements under the assumption that it is a
going concern. The Company’s recurring losses and negative cash flows from
operation raise substantial doubt about its ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
The
Company had $4.9 million of cash and cash equivalents on hand at December 31,
2008. Net cash used in operating activities during 2008 was $25.7 million, which
represents an average monthly outflow of $2.1 million.
On June
5, 2008, the Company entered into a securities purchase agreement with certain
institutional and accredited investors to place up to $40 million of senior
secured convertible notes with such investors. On June 9, 2008, the Company
placed $20 million of such notes in the initial closing.
The
2-year notes bear interest at an annual rate of 15% payable at quarterly
intervals in stock or cash at the Company’s option, and are convertible into
shares of Genta common stock at a conversion rate of 2,000 shares of common
stock for every $1,000 of principal. Holders of the notes have the right, but
not the obligation, for the 12 months following the initial closing date to
purchase in whole or in part up to an additional $20 million of the notes. The
Company shall have the right to force conversion of the notes in whole or in
part if the closing bid price of the Company’s common stock exceeds $0.50 for a
period of 20 consecutive trading days. Certain members of senior management of
Genta participated in this offering. The notes are secured by a first lien on
all assets of Genta.
The notes
included certain events of default, including a requirement that the Company
obtain stockholder approval within a specified period of time to amend its
certificate of incorporation to authorize additional shares of common stock. On
October 6, 2008, at the Annual Meeting of Stockholders, the Company’s
stockholders approved an amendment to Genta’s Restated Certificate of
Incorporation, as amended, to increase the total number of authorized shares of
capital stock available for issuance from 255,000,000, consisting of 250,000,000
shares of Common Stock and 5,000,000 shares of Preferred Stock, to
6,005,000,000, consisting of 6,000,000,000 shares of Common Stock and 5,000,000
shares of Preferred Stock.
The
Company will require additional cash in order to maximize its commercial
opportunities and continue its clinical development opportunities. The Company
has had discussions with other companies regarding partnerships for the further
development and global commercialization of Genasense®. Additional alternatives
available to the Company to subsequently sustain its operations include
financing arrangements with potential corporate partners, debt financing,
asset-based loans, royalty-based financings, equity financing 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.
Presently, with no further financing, management projects that the Company will
run out of funds in the first quarter of 2009. The Company currently does not
have any additional financing in place. There can be no assurance that the
Company can obtain financing, if at all, on terms acceptable to
it.
GENTA
INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the years ended December 31, 2008, 2007 and 2006
If the
Company is unable to raise additional funds, it will need to do one or more of
the following:
|
•
|
delay, scale back or eliminate
some or all of the Company’s research and product development programs and
sales and marketing
activity;
|
|
•
|
license third parties to develop
and commercialize products or technologies that the Company would
otherwise seek to develop and commercialize
themselves;
|
|
•
|
attempt to sell the
Company;
|
On June
26, 2009, the Company effected a one-for-fifty reverse stock split of its
common stock. It did not reduce the number of shares that the Company is
authorized to issue or change the par value of the common stock. All references
to common share values in these consolidated financial statements have been
restated to reflect this split.
2.
Summary of Significant Accounting Policies
Basis
of Presentation
The
consolidated financial statements are presented on the basis of accounting
principles generally accepted in the United States of America. Such financial
statements include the accounts of the Company and all majority-owned
subsidiaries.
Use
of Estimates
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.
Cash
and Cash Equivalents
Cash and
cash equivalents consist of highly liquid instruments with maturities of three
months or less from the date acquired and are stated at cost that approximates
their fair market value. At December 31, 2008, the amounts on deposit that
exceeded the $250,000 federally insured limit was $3.9 million.
Revenue
Recognition
The
Company recognizes revenue from product sales when title to product and
associated risk of loss has passed to the customer and the Company is reasonably
assured of collecting payment for the sale. All revenue from product sales are
recorded net of applicable allowances for returns, rebates and other applicable
discounts and allowances. The Company allows return of its product for up to
twelve months after product expiration.
Research
and Development
Research
and development costs are expensed as incurred, including raw material costs
required to manufacture products for clinical trials.
GENTA
INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the years ended December 31, 2008, 2007 and 2006
Income
Taxes
The
Company uses the liability method of accounting for income taxes. Deferred
income taxes are determined based on the estimated future tax effects of
differences between the financial statement and tax bases of assets and
liabilities given the provisions of the enacted tax laws. Management records
valuation allowances against net deferred tax assets, if based upon the
available evidence, it is more likely than not that some or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax assets
is dependent upon the generation of future taxable income and when temporary
differences become deductible. The Company considers, among other available
information, uncertainties surrounding the recoverability of deferred tax
assets, scheduled reversals of deferred tax liabilities, projected future
taxable income and other matters in making this assessment. The Company reviewed
its deferred tax assets and at both December 31, 2008 and December 31, 2007,
recorded a valuation allowance to reduce these assets to zero to reflect that,
more likely than not, they will not be realized. Utilization of the Company’s
net operating loss (NOL) and research and development (R&D) credit
carryforwards may be subject to a substantial annual limitation due to ownership
change limitations that may have occurred or that could occur in the future, as
required by Section 382 of the Internal Revenue Code of 1986, as amended (the
Code), as well as similar state provisions. These ownership changes may limit
the amount of NOL and R&D credit carryforwards that can be utilized annually
to offset future taxable income and tax, respectively. In general, an “ownership
change” as defined by Section 382 of the Code results from a transaction or
series of transactions over a three-year period resulting in an ownership change
of more than 50 percentage points of the outstanding stock of a company by
certain stockholders or public groups.
In July
2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48, “ Accounting for Uncertainty in Income
Taxes-an interpretation
of FASB Statement No. 109 ” (“FIN 48”), which clarifies the accounting
and disclosure for uncertainty in tax positions, as defined. The Company adopted
the provisions of FIN 48 as of January 1, 2007 and has analyzed filing positions
in all of the federal and state jurisdictions where it is required to file
income tax returns, as well as all open tax years in these
jurisdictions.
The State
of New Jersey has taken the position that amounts reimbursed to Genta by Aventis
Pharmaceutical Inc. for co-development expenditures during an audit period of
2000 through 2004 were subject to Alternative Minimum Assessment (AMA),
resulting in a liability at December 31, 2008 of $841,000, (see Note 13 to the
Company’s Consolidated Financial Statements). The Company believes the State’s
position is unjustified and is pursuing this matter before the New Jersey Tax
Court. Other than this matter, the Company believes that its income tax filing
positions and deductions will be sustained on audit and does not anticipate any
adjustments that will result in a material change to its financial position.
Therefore, no reserves for uncertain income tax positions have been recorded
pursuant to FIN 48. In addition, the Company did not record a cumulative effect
adjustment related to the adoption of FIN 48. If such adjustment was recorded,
it would have been fully offset by a change in a valuation
allowance.
The
Company’s policy for recording interest and penalties associated with audits is
that penalties and interest expense are recorded in interest expense in the
Company’s Consolidated Statements of Operations.
Stock
Options
The
Company’s share-based payments including grants of employee stock options are
recognized in the Consolidated Statement of Operations based on their fair
values. The amount of compensation cost is measured based on the grant-date fair
value of the equity instrument issued. The Company utilizes a Black-Scholes
option-pricing model to measure the fair value of stock options granted to
employees. See Note 15 to our Consolidated Financial Statements for a further
discussion on share-based compensation.
Deferred
Financing Costs and Other Debt-Related Costs
Deferred
financing costs are amortized over the term of its associated debt instrument.
The Company evaluates the terms of the debt instruments to determine if any
embedded derivatives or beneficial conversion features exist. The Company
allocates the aggregate proceeds of the notes payable between the warrants and
the notes based on their relative fair values in accordance with Accounting
Principle Board No. 14 (APB 14), “Accounting for Convertible Debt and Debt
Issued with Stock Purchase Warrants.” The fair value of the warrant issued to
the placement agent is calculated utilizing the Black-Scholes option-pricing
model. The Company is amortizing the resultant discount or other features over
the term of the notes through its earliest maturity date using the effective
interest method. Under this method, the interest expense recognized each period
will increase significantly as the instrument approaches its maturity date. If
the maturity of the debt is accelerated because of defaults or conversions, then
the amortization is accelerated.
GENTA
INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the years ended December 31, 2008, 2007 and 2006
Net
Loss Per Common Share
Net loss
per common share for the year ended December 31, 2008, 2007 and 2006,
respectively, are based on the weighted average number of shares of common stock
outstanding during the periods. Basic and diluted loss per share are identical
for all periods presented as potentially dilutive securities have been excluded
from the calculation of the diluted net loss per common share because the
inclusion of such securities would be antidilutive. The potentially dilutive
securities include 32 million, 46,000 and 42,000 in 2008, 2007 and 2006,
respectively, reserved for the conversion of convertible notes, convertible
preferred stock and the exercise of outstanding options and
warrants.
Recent
Accounting Pronouncements
In June
2008 the FASB issued EITF 07-5, “Determining Whether an Instrument (or Embedded
Feature) Is Indexed to an Entity’s Own Stock”. EITF 07-5 provides guidance in
assessing whether an equity-linked financial instrument (or embedded feature) is
indexed to an entity’s own stock for purposes of determining whether the
appropriate accounting treatment falls under the scope of SFAS 133, “Accounting
For Derivative Instruments and Hedging Activities” and/or EITF 00-19,
“Accounting For Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company’s Own Stock”. EITF 07-05 is effective as of the beginning
of our 2009 fiscal year. The Company does not expect the adoption of EITF 07-05
to have a material impact on its consolidated financial position or results of
operations.
In May
2008, the FASB issued FASB Staff Position (“FSP”) APB 14-1, Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement). FSP APB14-1 will require us to account
separately for the liability and equity components of our convertible debt. The
debt would be recognized at the present value of its cash flows discounted using
our nonconvertible debt borrowing rate at the time of issuance. The equity
component would be recognized as the difference between the proceeds from the
issuance of the note and the fair value of the liability. The FSP also requires
accretion of the resultant debt discount over the expected life of the debt. The
FSP is effective for fiscal years beginning after December 15, 2008, and interim
periods within those years. Entities are required to apply the FSP
retrospectively for all periods presented. We are currently evaluating FSP APB
14-1 and have not yet determined the impact its adoption will have on our
consolidated financial statements. However, the impact of this new accounting
treatment may be significant and may result in a significant increase to
non-cash interest expense beginning in fiscal year 2009 for financial statements
covering past and future periods.
In May
2008, the Financial Accounting Standards Board (FASB) issued SFAS No. 162, “
The Hierarchy of Generally
Accepted Accounting Principles” . The statement is intended to improve
financial reporting by identifying a consistent hierarchy for selecting
accounting principles to be used in preparing financial statements that are
prepared in conformance with generally accepted accounting principles. The
statement is effective 60 days following the Securities and Exchange
Commission’s (SEC) approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, “ The Meaning of Present Fairly in Conformity with
GAAP ”, and is not expected to have any impact on the Company’s financial
statements.
In March
2008, the FASB issued SFAS 161, “ Disclosures about Derivative
Instruments and Hedging
Activities , an
amendment of FASB SFAS 133 ” (“SFAS 161”), which requires enhanced
disclosures for derivative and hedging activities. SFAS 161 will become
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008. The implementation of this standard did not
have a material effect on the Company’s consolidated financial
statements.
In
December 2007, the FASB issued SFAS 141(R), “ Business Combinations ”
(“SFAS 141(R)”), which replaces SFAS 141. SFAS 141(R) establishes principles and
requirements for how an acquirer in a business combination recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any controlling interest; recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain purchase;
and determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. SFAS 141(R) is to be applied prospectively to business combinations
for which the acquisition date is on or after an entity’s fiscal year that
begins after December 15, 2008. The standard will have an impact on our
financial statements when an acquisition occurs.
GENTA
INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the years ended December 31, 2008, 2007 and 2006
In
December 2007, the FASB issued SFAS 160, “ Noncontrolling Interests in
Consolidated Financial
Statements — an amendment of ARB No. 51 ” (“SFAS 160”). SFAS 160
establishes new accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a subsidiary.
Specifically, this statement requires the recognition of a noncontrolling
interest (minority interest) as equity in the consolidated financial statements
and separate from the parent’s equity. The amount of net income attributable to
the noncontrolling interest will be included in consolidated net income on the
face of the income statement. SFAS 160 clarifies that changes in a parent’s
ownership interest in a subsidiary that do not result in deconsolidation are
equity transactions if the parent retains its controlling financial interest. In
addition, this statement requires that a parent recognize a gain or loss in net
income when a subsidiary is deconsolidated. SFAS 160 also includes expanded
disclosure requirements regarding the interests of the parent and its
noncontrolling interest. SFAS 160 is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2008. The
implementation of this standard did not have a material effect on the Company’s
consolidated financial statements.
In
December 2007, the SEC issued Staff Accounting Bulletin 110 (“SAB 110”), which
permits entities, under certain circumstances, to continue to use the
“simplified” method of estimating the expected term of plain options as
discussed in SAB No. 107 and in accordance with SFAS 123R. The guidance in this
release was effective January 1, 2008. The implementation of this standard did
not have a material effect on the Company’s consolidated financial
statements.
In
December 2007, the FASB issued EITF Issue No. 07-1, “ Accounting for Collaborative Arrangements ,”
which is effective for calendar year companies on January 1, 2009. The Task
Force clarified the manner in which costs, revenues and sharing payments made
to, or received by, a partner in a collaborative arrangement should be presented
in the income statement and set forth certain disclosures that should be
required in the partners’ financial statements. The implementation of this
standard did not have a material effect on the Company’s consolidated financial
statements.
In June
2007, the FASB issued EITF Issue No. 07-3, “ Accounting for Nonrefundable Advance Payments for
Goods or Services Received for Use in Future Research and Development
Activities ,” which was effective for calendar year companies on January
1, 2008. The Task Force concluded that nonrefundable advance payments for goods
or services that will be used or rendered for future research and development
activities should be deferred and capitalized. Such amounts should be recognized
as an expense as the related goods are delivered or the services are performed,
or when the goods or services are no longer expected to be provided. The
implementation of this standard did not have a material effect on the Company’s
consolidated financial statements.
In
February 2007, the FASB issued SFAS 159, “ The Fair Value Option for
Financial Assets and Financial
Liabilities ” (“SFAS 159”). SFAS 159 permits all entities to choose to
elect, at specified election dates, to measure eligible financial instruments at
fair value. An entity shall report unrealized gains and losses on items for
which the fair value option has been elected in earnings at each subsequent
reporting date and recognize upfront costs and fees related to those items in
earnings as incurred and not deferred. SFAS 159 applied to fiscal years
beginning after November 15, 2007, with early adoption permitted for an entity
that also elected to apply the provisions of SFAS 157, “ Fair Value Measurements ”.
The implementation of this standard did not have a material effect on the
Company’s consolidated financial statements.
In
September 2006, the FASB issued SFAS 157, “ Fair Value Measurements ”.
SFAS 157 defines fair value, establishes a framework for measuring fair value in
accordance with accounting principles generally accepted in the United States of
America and expands disclosures about fair value measurements. SFAS 157 applies
under other accounting pronouncements that require or permit fair value
measurements. The Company was required to adopt SFAS 157 beginning January 1,
2008. In February 2008, the FASB released FASB Staff Position (FSP FAS 157-2 —
Effective Date of FASB Statement No. 157), which delayed the effective date of
SFAS No. 157 for all non-financial assets and liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). The adoption of SFAS No. 157 for the Company’s
financial assets and liabilities did not have a material impact on its
consolidated financial statements. The Company does not expect that adoption of
SFAS No. 157 for the Company’s non-financial assets and liabilities, effective
January 1, 2009, will have a material impact on its financial
statements.
GENTA
INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the years ended December 31, 2008, 2007 and 2006
3.
Marketable Securities
The
carrying amounts of the Company’s marketable securities, which are primarily
securities of government-backed agencies, approximate fair value due to the
short-term nature of these instruments. The fair value of available-for-sale
marketable securities was as follows ($ thousands):
|
|
December
31,
2007
|
|
Cost
|
|
$
|
1,970
|
|
Gross
unrealized gains
|
|
|
29
|
|
Gross
unrealized losses
|
|
|
—
|
|
Fair
value
|
|
$
|
1,999
|
|
The fair
value of each marketable security was compared to its cost and therefore,
unrealized gains of approximately $29,000 were recognized in accumulated other
comprehensive income in the Company’s Consolidated Balance Sheets at December
31, 2007.
4.
Inventory
Inventories
are stated at the lower of cost or market with cost being determined using the
first-in, first-out (FIFO) method. Inventories consisted of the following ($
thousands):
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
Raw
materials
|
|
$
|
24
|
|
|
$
|
24
|
|
Work
in process
|
|
|
—
|
|
|
|
—
|
|
Finished
goods
|
|
|
97
|
|
|
|
201
|
|
|
|
$
|
121
|
|
|
$
|
225
|
|
The
Company has substantial quantities of Genasense® drug supply which are recorded
at zero cost. Such inventory would be available for the commercial launch of
this product, should Genasense® be approved.
5.
Settlement of Office Lease Obligation and Operating Leases
In May
2008, the Company entered into an amendment of its Lease Agreement with The
Connell Company (Connell), whereby the lease for one floor of office space in
Berkeley Heights, New Jersey was terminated. Connell received a termination
payment of $1.3 million, comprised solely of the Company’s security deposits and
the Company agreed to a future payment from the Company of $2.0 million upon the
earlier of July 1, 2009 or the receipt of at least $5.0 million in upfront cash
from a business development deal. In January 2009, the Company entered into an
amendment of its agreement with Connell whereby the Company’s future payment of
$2.0 million is now payable on January 1, 2011. The Company will pay 6.0%
interest in arrears to Connell from July 1, 2009 through the new payment
date.
At
December 31, 2007, the Company had maintained $1.7 million in restricted cash
balances with financial institutions related to lease obligations on its
corporate facilities. These amounts were included in other assets in the
Company’s Consolidated Balance Sheets.
GENTA
INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the years ended December 31, 2008, 2007 and 2006
Future
minimum obligations under operating leases at December 31, 2008 are as follows
($ thousands):
2009
|
|
$
|
706
|
|
2010
|
|
|
146
|
|
2011
|
|
|
2,007
|
|
2012
|
|
|
—
|
|
2013
|
|
|
—
|
|
Thereafter
|
|
|
—
|
|
|
|
$
|
2,859
|
|
Annual
rent expense incurred by the Company in 2008, 2007 and 2006 was $4.8 million,
$2.6 million and $2.5 million, respectively. The annual rent expense in 2008 of
$4.8 million includes the termination agreement with Connell for $3.3
million.
6.
Provision for Settlement of Litigation, net
The
Company reached an agreement to settle a class action litigation in
consideration for issuance of 40,000 shares of common stock of the Company
(adjusted for any subsequent event that results in a change in the number of
shares outstanding as of January 31, 2007) and $18.0 million in cash for the
benefit of plaintiffs and the stockholder class, (see Note 19 to the
Consolidated Financial Statements). A Court order approving the settlement was
issued on May 27, 2008 and the settlement became final on June 27, 2008. The
Company also entered into release and settlement agreements with its insurance
carriers, pursuant to which insurance will cover the settlement fee and various
costs incurred in connection with the action. Under FASB Statement No. 5, “
Accounting for Contingencies
” and FASB Interpretation No. 14, “ Reasonable Estimation of the Amount of a Loss,
an interpretation of FASB Statement No. 5, ” the Company recorded an
expense of $5.3 million, comprised of 40,000 shares of the Company’s common
stock valued at a market price of $132.00 on December 31, 2006. At December 31,
2007, the revised estimated value of the common shares portion of the litigation
settlement was $1.0 million, based on a closing price of Genta’s common stock of
$26.00 per share, resulting in a reduction in the provision of $4.2 million
recognized in the year ended December 31, 2007. At June 27, 2008, the date that
the settlement became final, the revised value of the common stock portion of
the litigation settlement was $0.7 million, based on a closing price of Genta’s
common stock of $17.50 per share, resulting in a reduction in the provision of
$0.3 million for the year ended December 31, 2008. The liability for the
settlement of litigation, originally recorded at $23.2 million at December 31,
2006, was measured at $19.0 million at December 31, 2007 and $0.7 million at
December 31, 2008 and is included in accounts payable and accrued expenses in
the Company’s Consolidated Balance Sheets. An insurance receivable of $18.0
million was included in prepaid expenses and other current assets in the
Company’s Consolidated Balance Sheets at December 31, 2007. As a result of the
Court approving the settlement on May 27, 2008 and it being deemed final on June
27, 2008, the Company no longer had any interest in the insurance proceeds held
in escrow or the associated liability.
7.
Property and Equipment, Net
Property
and equipment is comprised of the following ($ thousands):
|
|
Estimated
|
|
|
December
31,
|
|
|
|
Useful
Lives
|
|
|
2008
|
|
|
2007
|
|
Computer
equipment
|
|
|
3
|
|
|
$
|
2,298
|
|
|
$
|
2,855
|
|
Software
|
|
|
3
|
|
|
|
3,206
|
|
|
|
3,211
|
|
Furniture
and fixtures
|
|
|
5
|
|
|
|
899
|
|
|
|
936
|
|
Leasehold
improvements
|
|
Life
of lease
|
|
|
|
463
|
|
|
|
420
|
|
Equipment
|
|
|
5
|
|
|
|
182
|
|
|
|
182
|
|
|
|
|
|
|
|
|
7,048
|
|
|
|
7,604
|
|
Less
accumulated depreciation and amortization
|
|
|
|
|
|
|
(6,748
|
)
|
|
|
(7,281
|
)
|
|
|
|
|
|
|
$
|
300
|
|
|
$
|
323
|
|
GENTA
INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the years ended December 31, 2008, 2007 and 2006
8.
Write-off of Prepaid Royalty
In
December 2000, the Company recorded $1.3 million as the fair value for its
commitment to issue shares of common stock to a major university as
consideration for an amendment to a license agreement initially executed in
August 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 2001. The Company planned to amortize the prepaid royalties upon the
commercialization of Genasense®. In December 2006, the Company received a
non-approvable notice from the FDA for its NDA for the use of Genasense® plus
chemotherapy in patients with CLL. As a result, in December 2006, the Company
accounted for the impairment of these prepaid royalties by recording a write-off
of this asset.
9.
Workforce reduction
In
December 2006, due to FDA’s non-approval of the Company’s NDA for CLL, the
Company initiated a series of steps that are designed to conserve cash in order
to focus on its oncology development operations. The Company reduced its
workforce by 34 positions, or approximately 35%, including the elimination of 18
positions classified as research and development, 9 in sales and marketing and 7
in administration. Severance costs of $0.7 million were recognized in operating
expenses in December 2006, including $0.3 million in research and development
expenses and $0.4 million in selling, general and administrative expenses in the
Company’s Consolidated Statements of Operations. Payment of the severance began
in January 2007 and was completed by June 30, 2007.
10.
Accounts Payable and Accrued Expenses
Accounts
payable and accrued expenses is comprised of the following ($
thousands):
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
Accounts
payable
|
|
$
|
4,654
|
|
|
$
|
2,519
|
|
Accrued
compensation
|
|
|
574
|
|
|
|
488
|
|
Reserve
for settlement of litigation obligation
|
|
|
700
|
|
|
|
19,040
|
|
License
obligations to Daiichi Sankyo
|
|
|
2,125
|
|
|
|
—
|
|
State
of New Jersey (AMA) tax liability
|
|
|
841
|
|
|
|
776
|
|
Other
accrued expenses
|
|
|
2,330
|
|
|
|
3,027
|
|
|
|
$
|
11,224
|
|
|
$
|
25,850
|
|
The
carrying amount of accounts payable approximates fair value due to the
short-term nature of these instruments.
11.
Notes Payable
During
2007, the Company issued notes payable to finance premiums for its corporate
insurance policies of $1.1 million. Payments were scheduled for seven or ten
equal monthly installments for the notes initiated in 2007. The notes payable
balance at December 31, 2007 was $0.5 million. The carrying amount of notes
payable approximates fair value due to the short-term nature of these
instruments.
GENTA
INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the years ended December 31, 2008, 2007 and 2006
12.
Convertible Notes and Warrant
On June
5, 2008, the Company entered into a securities purchase agreement with certain
institutional and accredited investors to place up to $40.0 million of senior
secured convertible notes with such investors. On June 9, 2008, the Company
placed $20.0 million of such notes in the initial closing. The notes are due
June 9, 2010 and bear interest at an annual rate of 15% payable at quarterly
intervals in stock or cash at the Company’s option, and are convertible into
shares of Genta common stock at a conversion rate of 2,000 shares of common
stock for every $1,000 of principal. At the time the notes were issued, the
Company recorded a debt discount (beneficial conversion) relating to the
conversion feature in the amount of $20.0 million. The aggregate intrinsic value
of the difference between the market price of the Company’s share of stock on
June 9, 2008 and the conversion price of the notes was in excess of the face
value of the $20.0 million notes, and thus, a full debt discount was recorded in
an amount equal to the face value of the debt. The Company is amortizing the
resultant debt discount over the term of the notes through its maturity date
using the effective interest method. In addition, the notes prohibit the Company
from consummating any additional financing transaction without the approval of
holders of more than two-thirds of the principal amount of the notes. The
Company is in compliance with all debt-related covenants at December 31,
2008.
Through
December 31, 2008, holders of the convertible notes have voluntarily converted
approximately $4.5 million, resulting in an issuance of 8.9 million shares of
common stock.
The notes
included certain events of default, including a requirement that the Company
obtain stockholder approval within a specified period of time to amend its
certificate of incorporation to authorize additional shares of common
stock.
Upon the
occurrence of an event of default, holders of the notes have the right to
require the Company to prepay all or a portion of their notes as calculated as
the greater of (a) 150% of the aggregate principal amount of the note plus
accrued interest or (b) the aggregate principal amount of the note plus accrued
interest divided by the conversion price; multiplied by a weighted average price
of the Company’s common stock. Pursuant to a general security agreement, entered
into concurrently with the notes (the “Security Agreement”), the notes are
secured by a first lien on all assets of the Company, subject to certain
exceptions set forth in the Security Agreement.
In
addition, in connection with the placement of the senior secured convertible
notes, the Company issued a warrant to its private placement agent to purchase
800,000 shares of common stock at an exercise price of $1.00 per share. The
warrant was valued at $7.6 million, using a Black-Scholes valuation model. In
addition, the Company incurred a financing fee of $1.2 million. The deferred
financing costs, including the financing fee and the initial value of the
warrant, are being amortized over the two-year term of the convertible notes. At
December 31, 2008, the unamortized balances of the financing fee and the warrant
are $0.9 million and $5.5 million, respectively.
The
Company concluded that it should initially account for conversion options
embedded in convertible notes in accordance with SFAS No. 133 “ Accounting for Derivative
Instruments and Hedging Activities ” (“SFAS 133”) and EITF 00-19 “ Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s
Own Stock ” (“EITF 00-19”). SFAS 133 generally requires companies to
bifurcate conversion options embedded in convertible notes from their host
instruments and to account for them as free standing derivative financial
instruments in accordance with EITF 00-19. EITF 00-19 states that if the
conversion option requires net cash settlement in the event of circumstances
that are not solely within the Company’s control, that the notes should be
classified as a liability measured at fair value on the balance sheet. In this
case, if the Company was not successful in obtaining approval of its
stockholders to increase the number of authorized shares to accommodate the
potential number of shares that the notes convert into, the Company would have
been required to cash settle the conversion option.
Upon the
issuance date, there were an insufficient number of authorized shares of common
stock in order to permit conversion of all of the issued convertible notes. In
accordance with EITF 00-19, when there are insufficient authorized shares to
allow for settlement of convertible financial instruments, the conversion
obligation for the notes should be classified as a liability and measured at
fair value on the balance sheet. Accordingly, at June 9, 2008, in connection
with the $20.0 million initial closing, the convertible features of the notes
were recorded as derivative liabilities of $380.0 million. At the recording of
the initial closing, the fair value of the conversion feature, $380.0 million,
exceeded the proceeds of $20.0 million. The difference of $360.0 million was
charged to expense as the change in the fair market value of conversion
liability. Accordingly, the Company recorded an initial discount of $20.0
million equal to the face value of the notes, which is being amortized over the
two-year term of the notes.
GENTA
INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the years ended December 31, 2008, 2007 and 2006
On
October 6, 2008, at the Annual Meeting of Stockholders, the Company’s
stockholders approved an amendment to Genta’s Restated Certificate of
Incorporation, as amended, to increase the total number of authorized shares of
capital stock available for issuance from 255,000,000, consisting of 250,000,000
shares of Common Stock and 5,000,000 shares of Preferred Stock, to
6,005,000,000, consisting of 6,000,000,000 shares of Common Stock and 5,000,000
shares of Preferred Stock. The notes were re-measured and credited to permanent
equity, resulting in total expense for the year ended December 31, 2008 of
$460.0 million.
The
conversion option was valued at June 9, 2008 and October 6, 2008 using the
Black-Scholes valuation model with the following assumptions:
|
|
October
6,
2008
|
|
|
June
9, 2008
|
|
Price
of Genta common stock
|
|
$
|
12.50
|
|
|
$
|
10.00
|
|
Volatility
|
|
|
137.4
|
%
|
|
|
125.6
|
%
|
Risk-free
interest rate
|
|
|
1.36
|
%
|
|
|
2.73
|
%
|
Remaining
contractual lives
|
|
|
1.68
|
|
|
|
2.00
|
|
The
Company also classified the warrant obligation as a liability to be measured at
fair value on the balance sheet, in accordance with EITF 00-19. Accordingly, at
June 9, 2008, the Company recorded the warrant liability at a fair value of $7.6
million based upon the Black-Scholes valuation model. On October 6, 2008, we
re-measured the warrant liability and credited it to permanent equity, resulting
in total expense for the year ended December 31, 2008 of $2.0
million.
|
|
October
6,
2008
|
|
|
June
9, 2008
|
|
Price
of Genta common stock
|
|
$
|
12.50
|
|
|
$
|
10.00
|
|
Volatility
|
|
|
128.6
|
%
|
|
|
115.0
|
%
|
Risk-free
interest rate
|
|
|
2.32
|
%
|
|
|
3.41
|
%
|
Remaining
contractual lives
|
|
|
4.68
|
|
|
|
5.00
|
|
13.
Income Taxes
Significant
components of the Company’s deferred tax assets as of December 31, 2008 and 2007
and related valuation reserves are presented below ($ thousands):
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
Deferred
compensation
|
|
$
|
772
|
|
|
$
|
772
|
|
Net
operating loss carryforwards
|
|
|
135,990
|
|
|
|
130,111
|
|
Research
and development credit and Orphan Drug credit
carryforwards
|
|
|
51,288
|
|
|
|
41,484
|
|
Purchased
technology and license fees
|
|
|
0
|
|
|
|
4,850
|
|
Depreciation
and amortization, net
|
|
|
193
|
|
|
|
261
|
|
Share-based
compensation expense
|
|
|
911
|
|
|
|
892
|
|
Provision
for settlement of litigation, net
|
|
|
308
|
|
|
|
458
|
|
Write-off
of prepaid royalties
|
|
|
558
|
|
|
|
558
|
|
New
Jersey Alternative Minimum Assessment (AMA) Tax
|
|
|
730
|
|
|
|
730
|
|
New
Jersey research and development credits
|
|
|
4,979
|
|
|
|
5,612
|
|
Provision
for excess inventory
|
|
|
714
|
|
|
|
714
|
|
Reserve
for product returns
|
|
|
0
|
|
|
|
2
|
|
Accrued
liabilities
|
|
|
1,576
|
|
|
|
355
|
|
Other,
net
|
|
|
197
|
|
|
|
323
|
|
Total
deferred tax assets
|
|
|
198,216
|
|
|
|
187,122
|
|
Valuation
allowance for deferred tax assets
|
|
|
(190,884
|
)
|
|
|
(187,122
|
)
|
Net
deferred tax assets
|
|
$
|
7,332
|
|
|
$
|
—
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
Deferred
financing costs
|
|
$
|
(4,922
|
)
|
|
$
|
—
|
|
Debt
discount
|
|
|
(2,410
|
)
|
|
|
—
|
|
Total
deferred tax liabilities
|
|
$
|
(7,332
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Net
deferred tax assets (liabilities)
|
|
$
|
—
|
|
|
$
|
—
|
|
GENTA
INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the years ended December 31, 2008, 2007 and 2006
A full
valuation allowance has been provided at December 31, 2008 and 2007,
respectively, to reserve for deferred tax assets, as it appears more likely than
not that net deferred tax assets will not be realized.
Effective
January 1, 2007 the company adopted FIN 48. As of December 31, 2008 and 2007,
the Company recorded a liability for $841,000 and $776,000, respectively, of
unrecognized tax benefits (UTB’s), of which $841,000 and $776,000 is included in
accounts payable and accrued expenses on the Company’s Consolidated Balance
Sheets, respectively. In addition, as of December 31, 2008 and 2007, the Company
reduced its deferred tax assets by $1,312,000 and $1,033,000, respectively.
However, the Company recorded a full valuation allowance on its net deferred tax
assets and reduced its valuation allowance on these respective amounts. The
amount of UTB’s that would have an impact on the effective tax rate, if
recognized, is $533,000.
A
reconciliation of the total amount of unrecognized tax benefits (UTB’s) is as
follows:
($
in thousands)
|
|
2008
|
|
|
2007
|
|
Unrecognized
tax benefits: January 1
|
|
$
|
1,567
|
|
|
$
|
1,388
|
|
|
|
|
|
|
|
|
|
|
Gross
increases: Tax positions taken in prior periods
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
decreases: Tax positions taken in prior periods
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Increases- Current period tax positions
|
|
$
|
278
|
|
|
$
|
179
|
|
|
|
|
|
|
|
|
|
|
Lapse
of Statute of Limitations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized
tax benefits: December 31
|
|
$
|
1,845
|
|
|
$
|
1,567
|
|
The
Company files corporate tax returns at the federal level and in the State of New
Jersey. The open tax years that are subject to examination for these
jurisdictions are 2005 through 2008 for federal returns and 2002 through 2008
for tax returns for the State of New Jersey.
New
Jersey has enacted legislation permitting certain corporations located in the
state to sell state tax loss carryforwards and state research and development
credits. The Company sold portions of its New Jersey net operating losses and
received approximate payments of $2.0 million in 2008 and $1.5 million in 2007,
recognized as income tax benefits.
GENTA
INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the years ended December 31, 2008, 2007 and 2006
If still
available under New Jersey law, the Company will attempt to sell its tax loss
carryforwards in 2008. We cannot be assured that the New Jersey program will
continue in 2008, nor can we estimate what percentage of our saleable tax
benefits New Jersey will permit us to sell, how much money will be received in
connection with the sale, or if the Company will be able to find a buyer for its
tax benefits.
The
Company’s Federal tax returns have never been audited. In January 2006, the
State of New Jersey concluded its fieldwork with respect to a tax audit for the
years 2000 through 2004. The State of New Jersey took the position that amounts
reimbursed to Genta by Aventis Pharmaceutical Inc. for co-development
expenditures during the audit period were subject to Alternative Minimum
Assessment (AMA), resulting in a liability at that time of approximately
$533,000. Although the Company and its outside tax advisors believe the State’s
position on the AMA liability is unjustified, there is little case law on the
matter and it is probable that the Company will be required to ultimately pay
the liability. As of December 31, 2008, the Company had accrued a tax liability
of $533,000, penalties of $27,000 and interest of $281,000 related to this
assessment. The Company appealed this decision to the State and in February
2008, the State notified the Company that its appeal had not been granted. The
Company believes the State’s position is unjustified and is pursuing this matter
before the New Jersey Tax Court. Upon close of the audit the Company’s UTB’s
should decrease by approximately $841,000.
The
Company recorded $65,000, $139,000 and $66,000 in interest expense related to
the State of New Jersey assessment during 2008, 2007 and 2006,
respectively.
At
December 31, 2008, the Company has federal and state net operating loss
carryforwards of approximately $324.8 million and $241.9 million, respectively.
The federal tax loss carryforward balance at December 31, 2008 begins to expire
in 2009 and completely expires in 2028. The Company also has Research and
Development credit and Orphan Drug credit carryforwards totaling $49.7 million;
the balance at December 31, 2008 begins to expire in 2009 and completely expires
in 2028.
14.
Stockholders’ (Deficit)/Equity
Common
Stock
On
October 6, 2008, at the Annual Meeting of Stockholders, the Company’s
stockholders approved an amendment to Genta’s Restated Certificate of
Incorporation, as amended, to increase the total number of authorized shares of
capital stock available for issuance from 255,000,000, consisting of 250,000,000
shares of Common Stock and 5,000,000 shares of Preferred Stock, to
6,005,000,000, consisting of 6,000,000,000 shares of Common Stock and 5,000,000
shares of Preferred Stock.
In
February 2008, the Company sold 122,000 shares of the Company’s common stock at
a price of $25.00 per share, raising approximately $3.1 million, before
estimated fees and expenses.
At the
Company’s Annual Meeting of Stockholders on July 11, 2007, the Company’s
stockholders authorized its Board of Directors to effect a reverse stock split
of all outstanding shares of common stock, and the Board of Directors
subsequently approved the implementation of a reverse stock split at a ratio of
one for six shares.
In March
2007, the Company sold 100,000 shares of the Company’s common stock at a price
of $108.00 per share, raising $10.2 million, net of fees and
expenses.
Preferred
Stock Purchase Right
In 2005
the Board of Directors adopted a Stockholder Rights Plan and declared a dividend
of one preferred stock purchase right (a “Right”) for each outstanding share of
common stock of the Company, payable to holders of record as of the close of
business on September 27, 2005. Generally, the rights become exercisable upon
the earlier of the close of business on the tenth business day following the
first public announcement that any person or group has become a beneficial owner
of 15% or more of the Company’s common stock and the close of business on the
tenth business day after the date of the commencement of a tender or exchange
offer by any person which would, if consummated, result in such person becoming
a beneficial owner of 15% or more of the Company’s common stock. Each Right
shall be exercisable to purchase, for $25.00, subject to adjustment, one
one-hundredth of a newly registered share of Series G Participating Cumulative
Preferred Stock, par value $0.001 per share of the Company.
GENTA
INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the years ended December 31, 2008, 2007 and 2006
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, 2008 and December 31, 2007, each share of Series A Preferred Stock was
convertible into 3.0699 and 0.0469 shares of common stock, respectively. At
December 31, 2008 and December 31, 2007, the Company had 7,700 shares of Series
A Convertible Preferred Stock issued and outstanding.
In the
event of a liquidation of the Company, the holders of the Series A Preferred
Stock are entitled to a liquidation preference equal to $50 per share, or $0.4
million at December 31, 2008.
Series
G Preferred Stock
The
Company has 5.0 million shares of preferred stock authorized, of which 2.0
million shares has been designated Series G Participating Cumulative
Preferred.
Warrant
In
connection with the June 2008 convertible note financing, the Company issued a
common stock purchase warrant to its private placement agent. The warrant is
exercisable into 800,000 shares of common stock at an exercise price of $1.00
per share.
Common
Stock Reserved
At
December 31, 2008, the Company had 9.7 million shares of common stock
outstanding, 68,000 shares reserved for the conversion of convertible preferred
stock and the exercise of outstanding options, 0.8 million shares reserved for
the conversion of an outstanding warrant and 31.1 million shares reserved for
the conversion of senior convertible notes, and 3,000 additional shares of
common stock authorized for issuance and remaining to be granted under the
Company’s Non-Employee Directors’ 1998 Stock Option Plan, as amended and
restated.
15.
Share-Based Compensation
The
Company estimates the fair value of each option award on the date of the grant
using the Black-Scholes option valuation model. Expected volatilities are based
on the historical volatility of the Company’s common stock over a period
commensurate with the options’ expected term. The expected term represents the
period of time that options granted are expected to be outstanding and is
calculated in accordance with the Securities and Exchange Commission (“SEC”)
guidance provided in the SEC’s Staff Accounting Bulletin 107 (“SAB 107”), using
a “simplified” method. The Company has used the simplified method and will
continue to use the simplified method as it does not have sufficient historical
exercise data to provide a reasonable basis upon which to estimate an expected
term. The risk-free interest rate assumption is based upon observed interest
rates appropriate for the expected term of the Company’s stock options. The
post-vesting forfeiture rate is estimated using historical option cancellation
information. The post-vesting forfeiture rate assumption was 40% for the years
ended December 31, 2007 and 2006, respectively, and was increased to 50% for the
year ended December 31, 2008 based on actual historical forfeitures. The
following table summarizes the weighted-average assumptions used in the
Black-Scholes model for options granted during the years ended December 31,
2008, 2007 and 2006, respectively:
GENTA
INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the years ended December 31, 2008, 2007 and 2006
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Expected
volatility
|
|
|
115.7
|
%
|
|
|
102
|
%
|
|
|
97
|
%
|
Expected
dividends
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expected
term (in years)
|
|
|
6.25
|
|
|
|
6.25
|
|
|
|
6.25
|
|
Risk-free
rate
|
|
|
2.7
|
%
|
|
|
4.8
|
%
|
|
|
4.6
|
%
|
The
share-based compensation expense recognized for the years ended December 31,
2008, 2007 and 2006, respectively, follows:
($
thousands, except per share data)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Research
and development expenses
|
|
$
|
151
|
|
|
$
|
521
|
|
|
$
|
997
|
|
Selling,
general and administrative
|
|
|
338
|
|
|
|
852
|
|
|
|
2,002
|
|
Total
share-based compensation expense
|
|
$
|
489
|
|
|
$
|
1,373
|
|
|
$
|
2,999
|
|
Share-based
compensation expense, per basic and diluted common share
|
|
$
|
0.44
|
|
|
$
|
2.32
|
|
|
$
|
6.65
|
|
16.
Stock Option Plans
As of
December 31 2008, the Company has two outstanding share-based compensation
plans, which are described below:
1998
Stock Incentive Plan
Pursuant
to the Company’s 1998 Stock Incentive Plan, as amended (the “1998 Plan”), 68,000
shares were provided for the grant of stock options to employees, directors,
consultants and advisors of the Company. Option awards were granted with an
exercise price at not less than the fair market price of the Company’s common
stock on the date of the grant; those option awards generally vested over a
four-year period in equal increments of 25%, beginning on the first anniversary
of the date of the grant. All options granted had contractual terms of ten years
from the date of the grant. As of May 27, 2008, the authorization to provide
grants under the 1998 Plan expired.
The
following table summarizes the option activity under the 1998 Plan as of
December 31, 2008 and changes during the three years then ended:
|
|
Number of
Shares
(in thousands)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
(in years)
|
|
|
Aggregate
Intrinsic Value
(in thousands)
|
|
Stock
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2005
|
|
|
31
|
|
|
|
1,512.00
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
9
|
|
|
|
582.00
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
(1
|
)
|
|
|
1,266.00
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2006
|
|
|
39
|
|
|
$
|
1,311.00
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
6
|
|
|
|
70.00
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
(2
|
)
|
|
|
819.00
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2007
|
|
|
43
|
|
|
$
|
1,152.50
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
(6
|
)
|
|
|
888.00
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2008
|
|
|
37
|
|
|
$
|
1,191.50
|
|
|
|
3.8
|
|
|
$
|
—
|
|
Vested
and exercisable at December 31, 2008.
|
|
|
26
|
|
|
$
|
1,109.50
|
|
|
|
1.7
|
|
|
$
|
—
|
|
GENTA
INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the years ended December 31, 2008, 2007 and 2006
There is
no intrinsic value to outstanding stock options as the exercise prices of all
outstanding options are above the market price of the Company’s stock at
December 31, 2008.
As of
December 31, 2008, there was approximately $0.2 million of total unrecognized
compensation cost related to non-vested share-based compensation granted under
the 1998 Plan, which is expected to be recognized over a weighted-average period
of 1.2 years.
The
following table summarizes the restricted stock unit (RSU) activity under the
1998 Plan as of December 31, 2008 and changes during the two years then
ended:
Restricted Stock Units
|
|
Number of
Shares
(in thousands)
|
|
|
Weighted
Average
Grant Date
Fair
Value per
Share
|
|
Outstanding
nonvested RSUs at January 1, 2007
|
|
|
0
|
|
|
$
|
—
|
|
Granted
|
|
|
1
|
|
|
$
|
71.00
|
|
Vested
|
|
|
0
|
|
|
$
|
—
|
|
Forfeited
or expired
|
|
|
(1
|
)
|
|
$
|
71.00
|
|
Outstanding
nonvested RSUs at December 31, 2007
|
|
|
0
|
|
|
$
|
71.00
|
|
Granted
|
|
|
10
|
|
|
$
|
20.50
|
|
Vested
|
|
|
0
|
|
|
$
|
71.00
|
|
Forfeited
or expired
|
|
|
(5
|
)
|
|
$
|
20.50
|
|
Outstanding
nonvested RSUs at December 31, 2008
|
|
|
5
|
|
|
$
|
20.50
|
|
As of
December 31, 2008, there was approximately $24,000 of total unrecognized
compensation cost related to non-vested share-based compensation resulting from
RSUs granted under the 1998 Plan, which is expected to be recognized over the
six months ended June 30, 2009.
1998
Non-Employee Directors’ Plan
Pursuant
to the Company’s 1998 Non-Employee Directors’ Plan as amended (the “Directors’
Plan”), 12,000 shares have been provided for the grant of non-qualified stock
options to the Company’s non-employee members of the Board of Directors. Option
awards must be granted with an exercise price at not less than the fair market
price of the Company’s common stock on the date of the grant. Initial option
grants vest over a three-year period in equal increments, beginning on the first
anniversary of the date of the grant. Subsequent grants, generally vest on the
date of the grant. All options granted have contractual terms of ten years from
the date of the grant.
The fair
value of each option award is estimated on the date using the same valuation
model used for options granted under the 1998 Plan.
GENTA
INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the years ended December 31, 2008, 2007 and 2006
The
following table summarizes the option activity under the Directors’ Plan as of
December 31, 2008 and changes during the three years then ended:
|
|
Number of
Shares
(in thousands)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
(in years)
|
|
|
Aggregate
Intrinsic Value
(in thousands)
|
|
Stock
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2005
|
|
|
4
|
|
|
$
|
1,878.00
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
0
|
|
|
|
621.00
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
0
|
|
|
|
300.00
|
|
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
(2
|
)
|
|
|
2,049.00
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2006
|
|
|
2
|
|
|
$
|
1,851.00
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
0
|
|
|
|
90.00
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
0
|
|
|
|
2,004.00
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2007
|
|
|
2
|
|
|
$
|
1,530.50
|
|
|
|
|
|
|
|
|
|
Granted.
|
|
|
0
|
|
|
|
12.50
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
0
|
|
|
|
2,091.00
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2008
|
|
|
2
|
|
|
$
|
1,130.50
|
|
|
|
6.2
|
|
|
$
|
—
|
|
Vested
and exercisable at December 31, 2008.
|
|
|
2
|
|
|
$
|
1,130.50
|
|
|
|
6.2
|
|
|
$
|
—
|
|
There is
no intrinsic value to outstanding stock options as the exercise prices of all
outstanding options are above the market price of the Company’s stock at
December 31, 2008. The weighted-average grant-date fair value of options granted
during the year ended December 31, 2008 was $12.50.
Stock
option grants for a combination of both the 1998 Plan and the 1998 Directors
Plan were as follows:
Year
|
|
Options Granted
(in Thousands)
|
|
|
Weighted
Average
Grant Date
Per Share
Fair Value
|
|
2008
|
|
|
0
|
|
|
$
|
12.50
|
|
2007
|
|
|
7
|
|
|
|
71.00
|
|
2006
|
|
|
9
|
|
|
|
585.00
|
|
GENTA
INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the years ended December 31, 2008, 2007 and 2006
An
analysis of all options outstanding as of December 31, 2008 is presented below,
(option figures are in thousands):
Range of Prices
|
|
|
Options
Outstanding
|
|
|
Weighted
Average
Remaining
Life in Years
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Options
Exercisable
|
|
|
Weighted
Average
Exercise Price
of
Options
Exercisable
|
|
$12.50
- $99.00 |
|
|
|
4
|
|
|
|
9.0
|
|
|
$
|
39.00
|
|
|
|
1
|
|
|
$
|
43.00
|
|
$136.50
- $477.00 |
|
|
|
3
|
|
|
|
7.4
|
|
|
|
353.50
|
|
|
|
1
|
|
|
|
347.50
|
|
$483.00
- $648.00 |
|
|
|
6
|
|
|
|
7.0
|
|
|
|
612.00
|
|
|
|
3
|
|
|
|
604.50
|
|
$729.00
- $800.50 |
|
|
|
16
|
|
|
|
0.9
|
|
|
|
800.00
|
|
|
|
16
|
|
|
|
|
|
$1,719.00
- $2,805.00 |
|
|
|
4
|
|
|
|
2.8
|
|
|
|
2,162.00
|
|
|
|
4
|
|
|
|
2,162.00
|
|
$2,964.00
- $5,475.00 |
|
|
|
6
|
|
|
|
4.2
|
|
|
|
3,314.50
|
|
|
|
2
|
|
|
|
3,761.50
|
|
|
|
|
|
39
|
|
|
|
3.9
|
|
|
$
|
1,188.50
|
|
|
|
27
|
|
|
|
1,111.00
|
|
2007
Stock Incentive Plan
On
September 17, 2007, the Company’s Board of Directors approved the Company’s 2007
Stock Incentive Plan (the “2007 Plan”), pursuant to which 170,000 shares of the
Company’s common stock would be authorized for issuance, subject to approval of
the Company’s stockholders. On September 17, 2007 and September 20, 2007, the
Board of Directors approved the issuance of a combined total of 108,000 options
under the 2007 Plan. Awards granted under the plan prior to stockholder approval
of the plan were subject to and conditioned upon receipt of such approval on or
before September 17, 2008. The Company did not obtain stockholder approval of
this plan; the plan was terminated and awards granted pursuant to the plan were
terminated. The Company did not recognize compensation expense for grants under
the 2007 Plan because grants of these options were contingent upon stockholder
approval, and therefore, a grant date as defined in SFAS 123R had not
occurred.
Acquisition
Bonus Program
On
September 17, 2007, the Board of Directors approved an Acquisition Bonus
Program. Under the program, participants were eligible to share in a portion of
the proceeds realized from a change in control of the Company that occurred
prior to the earlier of (i) December 31, 2008 or (ii) the approval by the
Company’s stockholders of the 2007 Stock Incentive Plan.
The
Acquisition Bonus Program expired on December 31, 2008.
17.
Employee
Savings Plan
In 2001,
the Company initiated sponsorship of the Genta Incorporated Savings and
Retirement Plan, a defined contribution plan under Section 401(k) of the
Internal Revenue Code. The Company’s matching contribution to the Plan was $0.2
million, $0.3 million, and $0.4 million for 2008, 2007 and 2006,
respectively.
An
analysis of comprehensive loss is presented below:
|
|
Years Ended December 31,
|
|
($ in thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Net
loss
|
|
$
|
(505,838
|
)
|
|
$
|
(23,320
|
)
|
|
$
|
(56,781
|
)
|
Change
in market value on available-for-sale marketable
securities
|
|
|
(29
|
)
|
|
|
29
|
|
|
|
31
|
|
Total
comprehensive loss
|
|
$
|
(505,867
|
)
|
|
$
|
(23,291
|
)
|
|
$
|
(56,750
|
)
|
GENTA
INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the years ended December 31, 2008, 2007 and 2006
19.
Commitments and Contingencies
Litigation
and Potential Claims
In
February 2007, a complaint against the Company was filed in the Superior Court
of New Jersey by Howard H. Fingert, M.D., a former employee of the Company. The
complaint alleges, among other things, breach of contract as to the Company’s
stock option plan and as to a consulting agreement allegedly entered into by the
Company and Dr. Fingert subsequent to termination of Dr. Fingert’s employment
with the Company, breach of implied covenant of good faith and fair dealing with
respect to the Company’s stock option plan and the alleged consulting agreement,
promissory estoppel with respect to the exercise of stock options and provision
of consulting services after termination of employment, and fraud and negligent
misrepresentation with respect to the exercise of stock options and provision of
consulting services after termination of employment. The complaint sought
monetary damages, including punitive and consequential damages. The Company and
Fingert settled this complaint in January 2009, and the Company accrued the
settlement amount as of December 31, 2008. The settlement did not constitute an
admission of guilt or liability.
In
November 2007, a complaint against the Company was filed in the United States
District Court for the District of New Jersey by Ridge Clearing &
Outsourcing Solutions, Inc. The complaint alleges, among other things, that the
Company caused or contributed to losses suffered by a Company stockholder which
have been incurred by Ridge. The Company and Ridge settled this complaint in
September 2008. The settlement did not constitute an admission of guilt or
liability.
In
September 2008, several stockholders of the Company, on behalf of themselves and
all others similarly situated, filed a class action complaint against us, our
Board of Directors, and certain of our executive officers in Superior Court of
New Jersey, captioned Collins v. Warrell, Docket No. L-3046-08. The complaint
alleges that in issuing convertible notes, our Board of Directors, and certain
officers breached their fiduciary duties, and we aided and abetted the breach of
fiduciary duty. Defendants filed a motion to dismiss on December 29, 2008.
Plaintiffs’ opposition is due on or before February 13, 2009, and Defendants’
reply is due March 16, 2009. It is possible that oral argument on the motion
will be held on March 20, 2009. Discovery has begun. We, the Board of Directors
and Officers deny these allegations and intend to vigorously defend this
lawsuit.
In
November 2008, a complaint against the Company and its transfer agent, BNY
Mellon Shareholder Services, was filed in the Supreme Court of the State of New
York by an individual stockholder. The complaint alleges that the Company and
its transfer agent caused or contributed to losses suffered by the stockholder.
The Company denies the allegations of the complaint and intends to vigorously
defend this lawsuit.
20. Supplemental Disclosure of Cash
Flows Information and Non-cash Investing and Financing
Activities
In
accordance with the terms of the convertible notes, the Company elected to pay
interest due on the notes on December 9, 2008 in shares of its common stock to
all noteholders where the issuance of the shares would not cause the noteholder
to beneficially own more than 4.999% of the Company’s outstanding common stock.
Accordingly, the Company issued 800,000 shares and $0.1 million to satisfy the
interest payment on December 9, 2008.
Through
December 31, 2008, holders of the convertible notes have voluntarily converted
approximately $4.5 million of their notes, resulting in an issuance of 9.0
million shares of common stock.
No
interest was paid for the twelve months ended December 31, 2007 and 2006,
respectively.
GENTA
INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the years ended December 31, 2008, 2007 and 2006
21.
Selected Quarterly Financial Data (Unaudited)
2008
|
|
Quarter Ended
|
|
($ thousands, except per share data)
|
|
Mar. 31
|
|
|
Jun. 30
|
|
|
Sep. 30
|
|
|
Dec. 31
|
|
Revenues
|
|
$
|
117
|
|
|
$
|
131
|
|
|
$
|
115
|
|
|
$
|
—
|
|
Gross
margin
|
|
|
92
|
|
|
|
102
|
|
|
|
89
|
|
|
|
(23
|
)
|
Operating
expenses
|
|
|
9,816
|
|
|
|
10,268
|
|
|
|
7,563
|
|
|
|
5,763
|
|
Other
income/(expense), net
|
|
|
67
|
|
|
|
(728,198
|
)
|
|
|
220,087
|
|
|
|
33,380
|
|
Net
(loss)/income
|
|
|
(9,657
|
)
|
|
|
(738,364
|
)
|
|
|
212,613
|
|
|
|
29,569
|
|
Net
(loss)/income per basic common share**
|
|
$
|
(14.29
|
)
|
|
$
|
(1,004.58
|
)
|
|
$
|
289.22
|
|
|
$
|
12.90
|
|
Net
(loss)/income per diluted common share
|
|
$
|
(14.29
|
)
|
|
$
|
(1,004.58
|
)
|
|
$
|
5.12
|
|
|
$
|
1.08
|
|
2007
|
|
Quarter Ended
|
|
($ thousands, except per share data)
|
|
Mar. 31
|
|
|
Jun. 30
|
|
|
Sep. 30
|
|
|
Dec. 31
|
|
Revenues
|
|
$
|
94
|
|
|
$
|
105
|
|
|
$
|
115
|
|
|
$
|
266
|
|
Gross
margin
|
|
|
72
|
|
|
|
79
|
|
|
|
95
|
|
|
|
244
|
|
Operating
expenses-net
|
|
|
5,875
|
|
|
|
8,594
|
|
|
|
8,046
|
|
|
|
3,601
|
|
Net
loss
|
|
|
(5,605
|
)
|
|
|
(8,235
|
)
|
|
|
(7,732
|
)
|
|
|
(1,748
|
)
|
Net
loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$
|
(10.50
|
)
|
|
$
|
(13.45
|
)
|
|
$
|
(12.63
|
)
|
|
$
|
(2.85
|
)
|
**
|
Net
(loss)/income per basic common share and net (loss)/income per diluted
common share are calculated independently for each quarter and the full
year based upon respective average shares outstanding. Therefore, the sum
of the quarterly amounts does not equal the annual amounts
reported.
|
The
Company has experienced significant quarterly fluctuations in operating results
and it expects that these fluctuations will continue.
Quarterly
results in 2008 have been impacted by the accounting for the convertible note
and warrant issued in June 2008, (see note 12 to the Consolidated Financial
Statements).
During
the fourth quarter of 2007, the Company revised its estimate of certain accrued
expenses in the amount of $4.7 million, since such amount was no longer deemed
probable.
Restatement
During
the Company’s year-end close, it was discovered that the $18.0 million escrow
deposit relating to the insurance proceeds and the corresponding liability to
settle a 2004 class action lawsuit against the Company should not have been
included on the Company’s Consolidated balance sheets as of June 30, 2008 and
September 30, 2008. As a result of the Court approving the settlement on May 27,
2008, and it being deemed final on June 27, 2008, the Company no longer had any
interest in the insurance proceeds held in escrow or the associated
liability.
In lieu
of filing amendments to the Reports on Form 10Q for the periods ended June 30,
2008 and September 30, 2008, the Company is providing the following unaudited
balance sheet captions to show the effect of the restatement. There was no
income statement effect resulting from the restatement and the only effect on
the Company’s statement of cash flows is a non-cash supplemental
disclosure.
GENTA
INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the years ended December 31, 2008, 2007 and 2006
|
|
Quarter ended
|
|
|
|
June 30, 2008
|
|
|
September 30,
2008
|
|
($ thousands)
|
|
(restated)
|
|
|
(restated)
|
|
Selected
Balance Sheet Data:
|
|
|
|
|
|
|
Current
assets
|
|
$
|
17,230
|
|
|
$
|
9,450
|
|
Total
assets
|
|
|
26,029
|
|
|
|
17,113
|
|
Current
liabilities
|
|
|
767,403
|
|
|
|
12,827
|
|
Total
liabilities
|
|
|
767,986
|
|
|
|
546,310
|
|
|
|
(as previously
reported)
|
|
|
(as previously
reported)
|
|
Current
assets
|
|
$
|
35,230
|
|
|
$
|
27,450
|
|
Total
assets
|
|
|
44,029
|
|
|
|
35,113
|
|
Current
liabilities
|
|
|
785,403
|
|
|
|
30,827
|
|
Total
liabilities
|
|
|
785,986
|
|
|
|
564,310
|
|
22.
Related Party Transactions
Dr.
Daniel Von Hoff, one of Genta’s directors, holds the position of Physician in
Chief and Director of Translational Research at the Translational Genomics
Research Institute (Tgen), which provides preclinical testing services under
direction of and by contract to Genta. During 2008, Tgen performed services for
which it was compensated by Genta in the amount of approximately $36,419. The
Company believes that the payment of these services was on terms no less
favorable than would have otherwise been provided by an ‘‘unrelated’’ party. In
the opinion of the Board of Directors, Dr. Von Hoff’s relationship with Tgen
will not interfere with Dr. Von Hoff’s exercise of independent judgment in
carrying out his responsibilities as a Director of Genta.
On June
5, 2008, the Company entered into a securities purchase agreement with certain
institutional and accredited investors to place up to $40 million of senior
secured convertible notes with such investors. On June 9, 2008, the Company
placed $20 million of such notes in an initial closing. Each of Dr. Raymond
Warrell, our Chief Executive Officer and Chairman, and Dr. Loretta Itri, our
President, Pharmaceutical Development and Chief Medical Officer, participated in
the initial closing by purchasing $1,950,000 and $300,000, respectively, of such
notes. The remaining members of the Board of Directors independently discussed
Dr. Warrell and Dr. Itri’s participation in the transaction and resolved that
such participation would not interfere with Dr. Warrell or Dr. Itri’s exercise
of independent judgment in carrying out their responsibilities in their
respective positions. In connection with the June 2008 convertible note
financing and in accordance with the Audit Committee Charter, the Audit
Committee reviewed and approved the June 2008 convertible note financing with
Dr. Warrell and Dr. Itri.
23.
Subsequent Events
From
January 1, 2009 through February 4, 2009, holders of convertible notes have
voluntarily converted approximately $4.6 million of their notes, resulting in an
issuance of 9.0 million shares of common stock.
GENTA
INCORPORATED
CONSOLIDATED
BALANCE SHEETS
(In thousands, except par value data)
|
|
|
|
|
|
|
|
|
September 30,
2009
|
|
|
December
31,
|
|
|
|
(unaudited)
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
7,383 |
|
|
$ |
4,908 |
|
Accounts
receivable – net of allowances of $21 at September 30, 2009 and $12 at
December 31, 2008, respectively
|
|
|
1 |
|
|
|
2 |
|
Inventory
(Note 4)
|
|
|
109 |
|
|
|
121 |
|
Prepaid
expenses and other current assets
|
|
|
510 |
|
|
|
973 |
|
Total
current assets
|
|
|
8,003 |
|
|
|
6,004 |
|
Property
and equipment, net
|
|
|
239 |
|
|
|
300 |
|
Deferred
financing costs and debt discount (Note 6)
|
|
|
10,611 |
|
|
|
6,389 |
|
Total
assets
|
|
$ |
18,853 |
|
|
$ |
12,693 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$ |
10,715 |
|
|
$ |
11,224 |
|
Convertible
notes due June 9, 2010, $2,186 outstanding, net of debt discount of ($888)
(Note 6)
|
|
|
1,298 |
|
|
|
— |
|
Total
current liabilities
|
|
|
12,013 |
|
|
|
11,224 |
|
Long-term
liabilities:
|
|
|
|
|
|
|
|
|
Office
lease settlement obligation (Note 4)
|
|
|
1,979 |
|
|
|
1,979 |
|
Convertible
notes due June 9, 2010, $15,540 outstanding, net of debt discount of
($11,186) (Note 6)
|
|
|
— |
|
|
|
4,354 |
|
Convertible
notes due April 2, 2012, $5,375 outstanding, net of debt discount of
($4,347) (Note 6)
|
|
|
1,028 |
|
|
|
— |
|
Convertible
notes due July 7, 2011, $751 outstanding, net of debt discount of ($665)
(Note 6)
|
|
|
86 |
|
|
|
- |
|
Convertible
notes due September 4, 2011, $7,000 outstanding, net of debt discount of
($6,747) (Note 6)
|
|
|
253 |
|
|
|
- |
|
Total
long-term liabilities
|
|
|
3,346 |
|
|
|
6,333 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note 9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
deficit:
|
|
|
|
|
|
|
|
|
Preferred
stock, 5,000 shares authorized:
|
|
|
|
|
|
|
|
|
Series
A convertible preferred stock, $.001 par value; 8 shares issued and
outstanding, liquidation value of $385 at September 30, 2009 and December
31, 2008, respectively
|
|
|
— |
|
|
|
— |
|
Series
G participating cumulative preferred stock, $.001 par value; 0 shares
issued and outstanding at September 30, 2009 and December 31, 2008,
respectively
|
|
|
— |
|
|
|
— |
|
Common
stock, $.001 par value; 6,000,000 and 6,000,000 shares authorized, 173,514
and 9,734 shares issued and outstanding at September 30, 2009 and December
31, 2008, respectively
|
|
|
174 |
|
|
|
10 |
|
Additional
paid-in capital
|
|
|
1,022,026 |
|
|
|
939,252 |
|
Accumulated
deficit
|
|
|
(1,018,706 |
) |
|
|
(944,126 |
) |
Total
stockholders’ deficit
|
|
|
3,494 |
|
|
|
(4,864 |
) |
Total
liabilities and stockholders’ deficit
|
|
$ |
18,853 |
|
|
$ |
12,693 |
|
See
accompanying notes to consolidated financial statements.
GENTA
INCORPORATED
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Three Months Ended
September
30,
|
|
|
Nine
Months Ended
September 30,
|
|
(In thousands, except per share data)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Product
sales – net
|
|
$ |
49 |
|
|
$ |
115 |
|
|
$ |
180 |
|
|
$ |
363 |
|
Cost
of goods sold
|
|
|
10 |
|
|
|
26 |
|
|
|
12 |
|
|
|
79 |
|
Gross
margin.
|
|
|
39 |
|
|
|
89 |
|
|
|
168 |
|
|
|
284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development.
|
|
|
5,874 |
|
|
|
5,255 |
|
|
|
11,846 |
|
|
|
16,146 |
|
Selling,
general and administrative
|
|
|
8,869 |
|
|
|
2,308 |
|
|
|
13,008 |
|
|
|
8,534 |
|
Settlement
of office lease obligation (Note 5)
|
|
|
— |
|
|
|
- |
|
|
|
— |
|
|
|
3,307 |
|
Reduction
in liability for settlement of litigation, net
|
|
|
— |
|
|
|
- |
|
|
|
— |
|
|
|
(340 |
) |
Total
operating expenses
|
|
|
14,743 |
|
|
|
7,563 |
|
|
|
24,854 |
|
|
|
27,647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income/(expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on maturity of marketable securities
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
31 |
|
Interest
income and other income, net
|
|
|
(12 |
) |
|
|
56 |
|
|
|
4 |
|
|
|
188 |
|
Interest
expense
|
|
|
(265 |
) |
|
|
(769 |
) |
|
|
(841 |
) |
|
|
(992 |
) |
Amortization
of deferred financing costs and debt discount (Note 6)
|
|
|
(5,450 |
) |
|
|
(3,600 |
) |
|
|
(22,362 |
) |
|
|
(4,441 |
) |
Fair
value – conversion feature liability (Note 6)
|
|
|
- |
|
|
|
220,000 |
|
|
|
(19,040 |
) |
|
|
(500,000 |
) |
Fair
value – warrant liability (Note 6)
|
|
|
- |
|
|
|
4,400 |
|
|
|
(7,655 |
) |
|
|
2,800 |
) |
Total
other income/(expense)
|
|
|
(5,727 |
) |
|
|
220,087 |
|
|
|
(49,894 |
) |
|
|
(508,045 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss)/income
|
|
$ |
(20,431 |
) |
|
$ |
212,613 |
|
|
$ |
(74,580 |
) |
|
$ |
(535,408 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss)/income per basic share
|
|
$ |
(0.15 |
) |
|
$ |
289.23 |
|
|
$ |
(0.98 |
) |
|
$ |
(748.55 |
) |
Net
(loss)/income per diluted share
|
|
$ |
(0.15 |
) |
|
$ |
5.12 |
|
|
$ |
(0.98 |
) |
|
$ |
(748.55 |
|
Shares
used in computing net (loss)/income per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
basic
share
|
|
|
139,349 |
|
|
|
735 |
|
|
|
75,850 |
|
|
|
715 |
|
Shares
used in computing net (loss)/income per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
diluted
share
|
|
|
139,349 |
|
|
|
41,524 |
|
|
|
75,850 |
|
|
|
715 |
|
See
accompanying notes to consolidated financial statements.
GENTA
INCORPORATED
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Nine Months Ended September
30,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
Operating
activities:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(74,580
|
)
|
|
$
|
(535,408
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
112
|
|
|
|
119
|
|
Amortization
of deferred financing costs and debt discount
|
|
|
22,362
|
|
|
|
4,441
|
|
Share-based
compensation
|
|
|
9,624
|
|
|
|
432
|
|
Gain
on maturity of marketable securities
|
|
|
—
|
|
|
|
(31
|
)
|
Reduction
in liability for settlement of litigation (Note 5)
|
|
|
—
|
|
|
|
(340
|
)
|
Change
in fair value – conversion feature liability (Note 6)
|
|
|
19,040
|
|
|
|
500,000
|
|
Change
in fair value – warrant liability (Note 6)
|
|
|
7,655
|
|
|
|
2,800
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
1
|
|
|
|
(38
|
)
|
Inventory
|
|
|
12
|
|
|
|
80
|
|
Prepaid
expenses and other current assets
|
|
|
463
|
|
|
|
649
|
|
Accounts
payable and accrued expenses
|
|
|
257
|
|
|
|
5,317
|
|
Net
cash used in operating activities
|
|
|
(15,054
|
)
|
|
|
(21,979
|
)
|
Investing
activities:
|
|
|
|
|
|
|
|
|
Maturities
of marketable securities
|
|
|
—
|
|
|
|
2,000
|
|
Elimination
of restricted cash deposits
|
|
|
—
|
|
|
|
1,731
|
|
Purchase
of property and equipment
|
|
|
(51
|
)
|
|
|
(11
|
)
|
Net
cash provided by (used in) investing activities
|
|
|
(51
|
)
|
|
|
3,720
|
|
Financing
activities:
|
|
|
|
|
|
|
|
|
Repayments
of note payable
|
|
|
—
|
|
|
|
(512
|
)
|
February
2008 issuance of common stock, net of costs of $173
|
|
|
-
|
|
|
|
2,877
|
|
June
2008 issuance of notes, net of costs of $1,205 (Note 6)
|
|
|
-
|
|
|
|
18,795
|
|
April
2009 issuance of notes and warrants, net of costs of $660 (Note
6)
|
|
|
5,290
|
|
|
|
-
|
|
July
2009 issuance of common stock, notes and warrants, net of costs of $105
(Note 6)
|
|
|
2,895
|
|
|
|
-
|
|
September
2009 issuance of common stock, notes and warrants, net of costs of $605
(Note 6)
|
|
|
9,395
|
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
17,580
|
|
|
|
21,160
|
|
Increase/(decrease)
in cash and cash equivalents
|
|
|
2,475
|
|
|
|
2,901
|
|
Cash
and cash equivalents at beginning of period
|
|
|
4,908
|
|
|
|
5,814
|
|
Cash
and cash equivalents at end of period
|
|
$
|
7,383
|
|
|
$
|
8,715
|
|
See
accompanying notes to consolidated financial statements.
GENTA
INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
At a
Special Meeting of Stockholders of Genta Incorporated (“Genta” or the “Company”)
held on June 26, 2009, the Company’s stockholders authorized its Board of
Directors to effect a reverse stock split of all outstanding shares of common
stock, and the Board of Directors subsequently approved the implementation of a
reverse stock split on June 26, 2009 at a ratio of one for fifty shares. All
share and per share data in these consolidated financial statements and related
notes hereto have been retroactively adjusted to account for the effect of the
reverse stock split for all periods presented prior to June 26,
2009.
2.
|
Organization, Business and
Liquidity
|
Genta
Incorporated is a biopharmaceutical company engaged in pharmaceutical (drug)
research and development, its sole reportable segment. The Company is dedicated
to the identification, development and commercialization of novel drugs for the
treatment of cancer and related diseases.
The
Company has had recurring annual operating losses since its inception. The
Company has prepared its financial statements under the assumption that it is a
going concern. The Company’s recurring losses and negative cash flows from
operations raise substantial doubt about its ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Net cash
used in operating activities during the nine months ended September 30, 2009 was
$15.1 million. Presently, with no further financing, management projects that
the Company will run out of funds in the second quarter of 2010. The terms of
the April 2009 Notes enable those noteholders, at their option, to purchase
additional notes with similar terms. The Company does not have any additional
financing in place. There can be no assurance that the Company can obtain
financing, if at all, on terms acceptable to it.
The
Company will require additional cash in order to maximize its commercial
opportunities and continue its clinical development opportunities. The Company
has had discussions with other companies regarding partnerships for the
development and commercialization of its product candidates. Additional
alternatives available to the Company to subsequently sustain its operations
include financing arrangements with potential corporate partners, debt
financing, asset sales, asset-based loans, royalty-based financings, equity
financing 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.
If the
Company is unable to raise additional funds, it could be required to reduce its
spending plans, reduce its workforce, license one or more of its products or
technologies that it would otherwise seek to commercialize itself, sell certain
assets, cease operations, or declare bankruptcy.
On June
9, 2008, the Company placed $20 million of senior secured convertible notes, or
the 2008 Notes, with certain institutional and accredited investors. The notes
bear interest at an annual rate of 15% payable at quarterly intervals in other
senior secured convertible promissory notes to the holder, and originally were
convertible into shares of Genta common stock at a conversion rate of 2,000
shares of common stock for every $1,000.00 of principal, (adjusted for the
reverse stock split). As a result of issuing convertible notes on April 2, 2009,
(see below), these notes are presently convertible into shares of Genta common
stock at a conversion rate of 10,000 shares of common stock for every $1,000.00
of principal. The 2008 Notes are secured by a first lien on all assets of
Genta.
On April
2, 2009, the Company placed approximately $6 million of senior secured
convertible notes, or the April 2009 Notes, and corresponding warrants to
purchase common stock. The April 2009 Notes bear interest at an annual rate of
8% payable semi-annually in other senior secured convertible promissory notes to
the holder, and are convertible into shares of the Company’s common stock at a
conversion rate of 10,000 shares of common stock for every $1,000.00 of
principal amount outstanding. The April 2009 Notes are also secured by a first
lien on all assets of Genta, which security interest is pari passu with the
security interest held by the holders of the 2008 Notes.
GENTA
INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
On July
7, 2009, the Company entered into a securities purchase agreement with certain
accredited institutional investors to place up to $10 million in aggregate
principal amount of units consisting of (i) 70% unsecured subordinated
convertible notes, or the July 2009 Notes, and (ii) 30% common
stock. In connection with the sale of the units, the Company also
issued to the investors two-year warrants to purchase common stock in an amount
equal to 25% of the number of shares of common stock issuable upon conversion of
the July 2009 Notes purchased by each investor (“July 2009 Warrants”). The
Company closed on $3 million of such July 2009 Notes, common stock and July 2009
Warrants on July 7, 2009.
On
September 4, 2009, the Company closed on $7 million of additional July 2009
Notes, common stock and July 2009 Warrants. Also on September 4, 2009, the
Company entered into a securities purchase agreement with certain accredited
institutional investors, pursuant to which the Company issued $3 million of
units consisting of (i) 70% unsecured subordinated convertible promissory notes,
or the September 2009 Notes, and (ii) 30% common stock, or the September 2009
financing. The September 2009 Notes bear interest at an annual rate of 8%
payable semi-annually in other senior secured convertible promissory notes to
the holder, and are convertible into shares of the Company’s common stock at a
conversion rate of 10,000 shares of common stock for every $1,000.00 of
principal amount outstanding. In connection with the sale of the
units, the Company also issued to the investors two-year warrants to purchase
common stock in an amount equal to 25% of the number of shares of common stock
issuable upon conversion of the September 2009 Notes purchased by each investor,
or the September 2009 Warrants. Pursuant to the terms of the
securities purchase agreement, the investors had four business days from the
date of the agreement to sign the agreement and provide their respective
investment to the Company.
3.
|
Summary of Significant Accounting
Policies
|
Accounting
Standards Updates
In June
2009, the Financial Accounting Standards Board (“FASB”) issued its final
Statement of Financial Accounting Standards (“SFAS”) No. 168 – The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles a replacement of FASB Statement No. 162. SFAS No. 168 made
the FASB Accounting Standards Codification (“the Codification”) the single
source of U.S. GAAP used by nongovernmental entities in the preparation of
financial statements, except for rules and interpretive releases of the
Securities & Exchange Commission (“SEC”) under authority of federal
securities laws, which are sources of authoritative accounting guidance for SEC
registrants. The Codification is meant to simplify user access to all
authoritative accounting guidance by reorganizing U.S. GAAP pronouncements into
roughly 90 accounting topics within a consistent structure; its purpose is not
to create new accounting and reporting guidance. The Codification supersedes all
existing non-SEC accounting and reporting standards and was effective for the
Company beginning July 1, 2009. Following SFAS No. 168, the FASB will not issue
new standards in the form of Statements, FASB Staff Positions, or Emerging
Issues Task Force Abstracts; instead, it will issue Accounting Standards
Updates. The FASB will not consider Accounting Standards Updates as
authoritative in their own right; these updates will serve only to update the
Codification, provide background information about the guidance and provide the
bases for conclusions on the change(s) in the Codification. In the description
of Accounting Standards Updates that follows, references in “italics” relate to
Codification Topics and Subtopics and their descriptive titles, as appropriate.
Adoption of the Codification does not have an impact on the Company’s financial
position or results of operations.
In May
2009, the FASB issued “Subsequent Events”. “Subsequent Events” incorporates into
authoritative accounting literature certain guidance that already existed within
generally accepted auditing standards, but the rules concerning recognition and
disclosure of subsequent events will remain essentially unchanged. Subsequent
events guidance addresses events which occur after the balance sheet date but
before the issuance of financial statements. Under “Subsequent Events”, an
entity must record the effects of subsequent events that provide evidence about
conditions that existed at the balance sheet date and must disclose but not
record the effects of subsequent events which provide evidence about conditions
that did not exist at the balance sheet date. The Company adopted “Subsequent
Events” and it did not have an impact on the Company’s consolidated financial
statements. There were no recognized or nonrecognized subsequent events
occurring after September 30, 2009 that required accounting or disclosure in
accordance with “Subsequent Events”. Subsequent events were evaluated to
November 16, 2009, the date the financial statements of the Company were
issued.
GENTA
INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
Accounting
Standards Updates Not Yet Effective
In
October 2009, an update was made to “Revenue Recognition – Multiple Deliverable
Revenue Arrangements.” This update removes the
objective-and-reliable-evidence-of-fair-value criterion from the separation
criteria used to determine whether an arrangement involving multiple
deliverables contains more than one unit of accounting, replaces references to
“fair value” with “selling price” to distinguish from the fair value
measurements required under the “Fair Value Measurements and Disclosures”
guidance, provides a hierarchy that entities must use to estimate the selling
price, eliminates the use of the residual method for allocation, and expands the
ongoing disclosure requirements. This update is effective for the Company
beginning January 1, 2011 and can be applied prospectively or retrospectively.
Management is currently evaluating the effect that adoption of this update will
have, if any, on the Company’s consolidated financial position and results of
operations when it becomes effective in 2011.
Other
Accounting Standards Updates not effective until after September 30, 2009, are
not expected to have a significant effect on the Company’s consolidated
financial position or results of operations.
Basis
of Presentation
The
consolidated financial statements are presented on the basis of accounting
principles generally accepted in the United States of America. The accompanying
consolidated financial statements included herein have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
have been condensed or omitted from this report, as is permitted by such rules
and regulations; however, the Company believes that the disclosures are adequate
to make the information presented not misleading. The unaudited consolidated
financial statements and related disclosures have been prepared with the
presumption that users of the interim financial information have read or have
access to the audited financial statements for the preceding fiscal year.
Accordingly, these financial statements should be read in conjunction with the
audited consolidated financial statements and the related notes thereto included
in the Company’s Annual Report on Form 10-K for the fiscal year ended December
31, 2008. Results for interim periods are not necessarily indicative of results
for the full year. In the opinion of management, the statements reflect all
adjustments necessary for fair presentation of the results of interim periods.
The Company has experienced significant quarterly fluctuations in operating
results and it expects those fluctuations will continue.
Use
of Estimates
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.
Cash
and Cash Equivalents
Cash and
cash equivalents consist of highly liquid instruments with maturities of three
months or less from the date acquired and are stated at cost that approximates
their fair market value. At September 30, 2009, the amounts on deposit that
exceeded the $250,000 federally insured limit was $6.7 million.
Revenue
Recognition
Genta
recognizes revenue from product sales when title to product and associated risk
of loss has passed to the customer and the Company is reasonably assured of
collecting payment for the sale. All revenue from product sales are recorded net
of applicable allowances for returns, rebates and other applicable discounts and
allowances. The Company allows return of its product for up to twelve months
after product expiration.
GENTA
INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
Research
and Development
Research
and development costs are expensed as incurred, including raw material costs
required to manufacture products for clinical trials.
Income
Taxes
The
Company uses the liability method of accounting for income taxes. Deferred
income taxes are determined based on the estimated future tax effects of
differences between the financial statement and tax bases of assets and
liabilities given the provisions of the enacted tax laws. Management records
valuation allowances against net deferred tax assets, if based upon the
available evidence, it is more likely than not that some or all of the deferred
tax assets will not be realized. The Company generated additional net operating
losses during the nine months ended September 30, 2009 and continues to maintain
a full valuation allowance against its net deferred tax assets. Utilization of
the Company’s net operating loss (NOL) and research and development (R&D)
credit carryforwards may be subject to a substantial annual limitation due to
ownership change limitations that may have occurred or that could occur in the
future, as required by Section 382 of the Internal Revenue Code of 1986, as
amended (the Code), as well as similar state provisions. These ownership changes
may limit the amount of NOL and R&D credit carryforwards that can be
utilized annually to offset future taxable income and tax, respectively. In
general, an “ownership change” as defined by Section 382 of the Code results
from a transaction or series of transactions over a three-year period resulting
in an ownership change of more than 50 percentage points of the outstanding
stock of a company by certain stockholders or public groups.
The
Company’s Federal tax returns have never been audited. In January 2006, the
State of New Jersey concluded its fieldwork with respect to a tax audit for the
years 2000 through 2004. The State of New Jersey took the position that amounts
reimbursed to Genta by Aventis Pharmaceutical Inc. for co-development
expenditures during the audit period were subject to Alternative Minimum
Assessment (AMA), resulting in a liability at that time of approximately $533
thousand. Although the Company and its outside tax advisors believe the State’s
position on the AMA liability is unjustified, there is little case law on the
matter and it is probable that the Company will be required to ultimately pay
the liability. As of September 30, 2009, the Company had accrued a tax liability
of $533 thousand, penalties of $27 thousand and interest of $321 thousand
related to this assessment. The Company appealed this decision to the New Jersey
Division of Taxation, and in February 2008, the Division of Taxation notified
the Company that its appeal had not been granted. On April 25, 2008, the Company
filed a complaint with the Tax Court of the State of New Jersey to appeal the
assessment. A bench trial took place on September 18, 2009. The judge is
expected to render a decision in the case during the first six months of 2010,
after considering the evidence and reviewing the parties’ legal briefs.
The
Company’s policy for recording interest and penalties associated with audits is
that penalties and interest expense are recorded in interest expense in the
Company’s Consolidated Statements of Operations. The Company recorded $40
thousand and $50 thousand in interest expense related to the State of New Jersey
assessment during the six months ended September 30, 2009 and 2008,
respectively.
Stock
Options and Restricted Stock Units
Stock
options and restricted stock units (“RSUs”) are recognized in the Consolidated
Statement of Operations based on their fair values. The amount of compensation
cost is measured based on the grant-date fair value of the equity instrument
issued. During 2009, with the implementation of two Equity Award Exchange
programs, outstanding stock option awards granted under the 1998 Non-Employee
Directors Plan, as amended, and 1998 Stock Incentive Plan, as amended, were
exchanged for grants of new RSUs under the Company’s 2009 Stock Incentive Plan.
Incremental compensation cost for the new RSUs was measured as the excess of the
fair value of the RSUs over the fair value of the exchanged stock option awards
on the date of exchange. The incremental compensation cost of the RSUs is being
recognized over the remaining amortization period of the exchanged stock option
awards. The Company utilizes a Black-Scholes option-pricing model to measure the
fair value of stock options granted to employees. See Note 7 and Note 8 to the
Consolidated Financial Statements for a further discussion on share-based
compensation.
GENTA
INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
Deferred
Financing Costs
In
conjunction with the issuance of the 2008 Notes, the April 2009 Notes, the July
2009 Notes and September 2009 Notes, the Company incurred certain costs,
including the issuance of warrants to purchase the Company’s common stock. This
additional consideration is being amortized over the term of the notes through
the earliest maturity date using the effective interest method. Under this
method, interest expense recognized each period will increase significantly as
the instrument approaches its maturity date. If the maturity of the debt is
accelerated because of conversions or defaults, then the amortization is
accelerated. The fair value of the warrants issued as placement fees in
connection with these financings are calculated utilizing the Black-Scholes
option-pricing model.
Net
(Loss)/Income Per Common Share
Net
(loss)/income per common share for the three and nine months ended September 30,
2009 and 2008, respectively, are based on the weighted average number of shares
of common stock outstanding during the periods. Basic net loss per share is
equal to diluted net loss per share for the three months and nine months ended
September 30, 2009 and for the nine months ended September 30, 2008, as
potentially dilutive securities have been excluded from the calculation of the
diluted net loss per common share, as the inclusion of such securities would be
antidilutive. At September 30, 2009 and 2008, respectively, the potentially
dilutive securities include approximately 253.4 million shares and approximately
40.8 million shares, respectively, reserved for the conversion of convertible
notes, convertible preferred stock vesting of RSUs and the exercise of
outstanding options and warrants.
Inventories
are stated at the lower of cost or market with cost being determined using the
first-in, first-out (FIFO) method. Inventories consisted of the following ($
thousands):
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
Raw
materials
|
|
$
|
24
|
|
|
$
|
24
|
|
Finished
goods
|
|
|
85
|
|
|
|
97
|
|
|
|
$
|
109
|
|
|
$
|
121
|
|
GENTA
INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
During
the nine months ended September 30, 2009, most of the sales of Ganite ® were
from product that had been previously accounted for as excess
inventory.
The
Company has substantial quantities of Genasense ® drug
supply which are recorded at zero cost. Such inventory would be available for
the commercial launch of this product, should Genasense ® be
approved.
5.
|
Office Lease Settlement
Obligation
|
In
January 2009, the Company entered into an amendment of its lease agreement with
The Connell Company, whereby the Company’s future payment of $2.0 million,
related to an earlier amendment of its lease for office space, is payable on
January 1, 2011, with 6.0% interest payable in arrears.
6.
|
Convertible Notes and
Warrants
|
On June
9, 2008, the Company placed $20 million of senior secured convertible notes, or
the 2008 Notes, with certain institutional and accredited investors. The notes
bear interest at an annual rate of 15% payable at quarterly intervals in other
senior secured convertible promissory notes to the holder, and originally were
convertible into shares of Genta common stock at a conversion rate of 2,000
shares of common stock for every $1,000.00 of principal, (adjusted for the
reverse stock split). As a result of issuing convertible notes on April 2, 2009,
(see below), these notes are presently convertible into shares of Genta common
stock at a conversion rate of 10,000 shares of common stock for every $1,000.00
of principal. The 2008 Notes are secured by a first on all assets of Genta,
which security interest is pari passu with the security interest held by the
holders of the April 2009 Notes.
At the
time the 2008 Notes were issued, the Company recorded a debt discount
(beneficial conversion) relating to the conversion feature in the amount of
$20.0 million. The aggregate intrinsic value of the difference between the
market price of the Company’s share of stock on June 9, 2008 and the conversion
price of the notes was in excess of the face value of the $20.0 million notes,
and thus, a full debt discount was recorded in an amount equal to the face value
of the debt. The Company is amortizing the resultant debt discount over the term
of the 2008 notes through their maturity date.
From
January 1, 2009 through September 30, 2009, holders of the 2008 Notes
voluntarily converted approximately $13.9 million, resulting in an issuance of
97.3 million shares of common stock. At September 30, 2009,
approximately $2.2 million of the 2008 Notes were outstanding.
Upon the
occurrence of an event of default, holders of the 2008 notes have the right to
require the Company to prepay all or a portion of their 2008 notes as calculated
as the greater of (a) 150% of the aggregate principal amount of the note plus
accrued interest or (b) the aggregate principal amount of the note plus accrued
interest divided by the conversion price; multiplied by a weighted average price
of the Company’s common stock. Pursuant to a general security agreement, entered
into concurrently with the notes (the “Security Agreement”), the notes are
secured by a first lien on all assets of the Company, subject to certain
exceptions set forth in the Security Agreement, which security interest is pari
passu with the security interest held by the holders of the April 2009
Notes.
In
addition, in connection with the placement of the 2008 Notes, the Company issued
a warrant to its private placement agent to purchase 800,000 shares of common
stock at an exercise price of $1.00 per share and incurred a financing fee of
$1.2 million. The financing fees are being amortized over the life of the
convertible notes and the initial value of the warrant is being amortized over
the term of the convertible notes. At September 30, 2009 and December 31, 2008,
the unamortized balances of the financing fee were $0.5 million and $0.9
million, respectively, and the warrants were $2.6 million and $5.4 million,
respectively.
On April
2, 2009, the Company placed approximately $6 million of the April 2009 Notes and
corresponding warrants to purchase common stock. The April 2009 Notes bear
interest at an annual rate of 8% payable semi-annually in other senior secured
convertible promissory notes to the holder, and are convertible into shares of
the Company’s common stock at a conversion rate of 10,000 shares of common stock
for every $1,000.00 of principal amount outstanding. The April 2009 Notes are
also secured by a first lien on all assets of Genta, which security interest is
pari passu with the security interest held by the holders of the 2008 Notes. The
terms of the April 2009 Notes enable those noteholders, at their option, to
purchase up to approximately $6 million of additional notes with similar
terms.
GENTA
INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
From
April 2, 2009 through September 30, 2009, holders of the April 2009 Notes
voluntarily converted approximately $0.7 million, resulting in an issuance of
7.5 million shares of common stock. At September 30, 2009,
approximately $5.4 million of the April 2009 Notes were
outstanding.
In
connection with the placement of the April 2009 Notes, the Company issued a
warrant to its private placement agent to purchase 3.6 million shares of common
stock at an exercise price of $0.50 per share and incurred financing fees of
$0.6 million. The financing fees and the initial value of the warrant are being
amortized over the term of the convertible notes. At September 30, 2009, the
unamortized balances of the financing fee and the warrant were $0.6 million and
$3.4 million, respectively.
The
Company concluded that it should initially account for conversion options
embedded in the 2008 Notes and April 2009 Notes by bifurcating the conversion
options embedded in convertible notes from their host instruments and to account
for them as free standing derivative financial instruments. If the conversion
option requires net cash settlement in the event of circumstances that are not
solely within the Company’s control, that the notes should be classified as a
liability measured at fair value on the balance sheet. In this case, if the
Company was not successful in obtaining approval of its stockholders to increase
the number of authorized shares to accommodate the potential number of shares
that the notes convert into, the Company would have been required to cash settle
the conversion option.
At the
time the April 2009 Notes were issued, the aggregate intrinsic value of the
difference between the market price of the Company’s share of stock on April 2,
2009 and the conversion price of the April 2009 Notes was in excess of the face
value of the $6 million April 2009 Notes, and thus, a full debt discount was
recorded in an amount equal to the face value of the debt. The Company is
amortizing the resultant debt discount over the term of the April 2009 Notes
through their maturity date. At April 2, 2009, there were an insufficient number
of authorized shares of common stock in order to permit exercise of all of the
issued convertible notes. When there are insufficient authorized shares, the
conversion obligation for the notes should be classified as a liability measured
at fair value on the balance sheet. At April 2, 2009, in connection with the $6
million closing, the fair value of the conversion feature, $67.8 million,
exceeded the proceeds of $6 million. The difference of $61.8 million was charged
to expense as the change in the fair market value of conversion
liability.
On June
26, 2009, at a Special Meeting of Stockholders, the Company’s stockholders
authorized its Board of Directors to effect a reverse stock split in any ratio
up to 1-for-100, while not reducing the number of authorized shares and not
changing the par value of the common stock. The Board of Directors implemented a
reverse stock split in a ratio of 1-for-50 and in so doing, the Company had
enough shares to accommodate the potential number of shares that the April 2009
Notes convert into. The fair value of the conversion feature was re-measured at
June 26, 2009 at $25.0 million and credited to permanent equity, resulting in
total expense of $19.0 million. The conversion option was valued at April 2,
2009 and June 26, 2009 using the Black-Scholes valuation model using the
following assumptions:
|
|
June 26, 2009
|
|
|
April 2, 2009
|
|
Price
of share of Genta common stock
|
|
$
|
0.425
|
|
|
$
|
1.15
|
|
Volatility
|
|
|
258
|
%
|
|
|
240
|
%
|
Risk-free
interest rate
|
|
|
1.50
|
%
|
|
|
1.25
|
%
|
Remaining
contractual lives
|
|
|
2.8
|
|
|
|
3.0
|
|
As a
result of issuing the April 2009 Notes, the conversion rate for the 2008 Notes
was adjusted to be the same conversion rate as the April 2009 Notes.
Accordingly, the 2008 Notes that originally were convertible into shares of
Genta common stock at a conversion rate of 2,000 shares of common stock for
every $1,000.00 of principal were adjusted to be convertible into shares of
Genta common stock at a conversion rate of 10,000 shares of common stock for
every $1,000.00 of principal. The Company valued this change in the conversion
rate on April 2, 2009; the aggregate intrinsic value of the difference in
conversion rates was in excess of the $10.7 million face value of the 2008
Notes, and the Company is amortizing the resultant debt discount over the
remaining term of the 2008 Notes.
GENTA
INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
As there
were an insufficient number of authorized shares of common stock in order to
fulfill all existing obligations at the time of issuance, the Company classified
the April 2009 warrant obligations as liabilities to be measured at fair value
on the balance sheet. Accordingly, at April 2, 2009, the Company recorded the
warrant liabilities at a fair value of $20.8 million, based upon the
Black-Scholes valuation model. The warrant liability was re-measured at June 26,
2009 at a fair value of $7.7 million, and credited to permanent equity,
resulting in an expense of $7.7 million. The warrant liability was valued at
April 2, 2009 and June 26, 2009 using the Black-Scholes valuation model using
the following assumptions:
|
|
June 26, 2009
|
|
|
April 2, 2009
|
|
Price
of share of Genta common stock
|
|
$
|
0.425
|
|
|
$
|
1.15
|
|
Volatility
|
|
|
244
|
%
|
|
|
224
|
%
|
Risk-free
interest rate
|
|
|
1.75
|
%
|
|
|
1.89
|
%
|
Remaining
contractual lives
|
|
|
3.3
|
|
|
|
3.5
|
|
On July
7, 2009, the Company entered into a securities purchase agreement with certain
accredited institutional investors to place up to $10 million in aggregate
principal amount of units consisting of (i) 70% July 2009 Notes and (ii) 30%
common stock. In connection with the sale of the units, the Company
also issued to the investors July 2009 Warrants. The Company closed on $3
million of such July 2009 Notes, common stock and July 2009 warrants on July 7,
2009. The July 2009 Notes bear interest at an annual rate of 8% payable
semi-annually in other senior secured convertible promissory notes to the
holder, and are convertible into shares of the Company’s common stock at a
conversion rate of 10,000 shares of common stock for every $1,000.00 of
principal amount outstanding.
From July
7, 2009 through September 30, 2009, holders of the July 2009 Notes voluntarily
converted approximately $1.3 million, resulting in an issuance of 13.5 million
shares of common stock. At September 30, 2009, approximately $0.8
million of the July 2009 Notes were outstanding.
In
connection with the placement of the July 2009 Notes, the Company issued a
warrant to its private placement agent to purchase 1.8 million shares of common
stock at an exercise price of $1.00 per share and incurred financing fees of
$0.1 million. The Company measured the initial value of the placement agent
warrant at $0.7 million using a Black Scholes model. The financing fees and the
initial value of the warrant are being amortized over the term of the
convertible notes. At September 30, 2009, the unamortized balances of the
financing fee and the warrant were $0.1 million and $0.6 million,
respectively.
At the
time the July 2009 Notes were issued, the aggregate intrinsic value,
representing the difference between the market price of the Company’s share of
stock on July 7, 2009 and the conversion price of the July 2009 Notes was in
excess of the face value of the $2.1 million of July 2009 Notes, and thus, a
full debt discount was recorded in an amount equal to the face value of the
debt. The Company is amortizing the resultant debt discount over the term of the
July 2009 Notes through their maturity date.
On
September 4, 2009, the Company closed on $7 million of additional July 2009
Notes, common stock and July 2009 Warrants. Also on September 4, 2009, the
Company entered into a securities purchase agreement with certain accredited
institutional investors, pursuant to which the Company issued $3 million of
units consisting of (i) 70% September 2009 Notes, and (ii) 30% common stock, or
the September 2009 financing. In connection with the sale of the
units, the Company also issued to the investors September 2009
Warrants. The September 2009 Notes bear interest at an annual rate of
8% payable semi-annually in other senior secured convertible promissory notes to
the holder, and are convertible into shares of the Company’s common stock at a
conversion rate of 10,000 shares of common stock for every $1,000.00 of
principal amount outstanding.
There has
been no conversion of September 2009 Notes or July 2009 Notes issued on
September 4, 2009.
In
connection with the placement of the September 2009 Notes and July 2009 Notes on
September 4, 2009, the Company issued warrants to its private placement agent to
purchase 6.0 million shares of common stock at an exercise price of $1.00 per
share and incurred financing fees of $0.6 million. The financing fees and the
value of the warrants of $2.2 million are being amortized over the term of the
convertible notes.
GENTA
INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
At the
time the September 2009 Notes and July 2009 Notes were issued on September 4,
2009, the aggregate intrinsic value, representing the difference between the
market price of the Company’s share of stock on September 4, 2009 and the
effective conversion price of the notes was in excess of the face value of the
$7.0 million of notes issued on September 4, 2009, and thus, a full debt
discount was recorded in an amount equal to the face value of the debt. The
Company is amortizing the resultant debt discount over the term of the notes
through their maturity date.
The
Company is in compliance with all debt-related covenants at September 30,
2009.
7.
|
Stock Incentive Plans and
Share-Based Compensation
|
During
2009, the Company had the following share-based compensation plans, which are
described below:
2009
Stock Incentive Plan
On July
9, 2009 the Company’s Board of Directors approved the establishment of the 2009
Stock Incentive Plan, (“2009 Plan”), subject to approval by the Company’s
stockholders. In addition, the Board of Directors approved an Equity Award
Exchange Offer Program for non-employee Directors, whereby each non-employee
Director was given an opportunity to exchange his outstanding stock options to
purchase shares of Genta common stock for new RSUs to be granted pursuant to the
Director grant program under the 2009 Plan. All of our eligible non-employee
Directors submitted their eligible stock options for cancellation, and
accordingly, each non-employee Director was granted a RSU award on July 16,
2009, subject to approval of the 2009 Plan by the Company’s stockholders. At the
Annual Meeting of Stockholders of Genta Incorporated held on August 26, 2009,
the Company’s stockholders approved the establishment of the 2009 Plan. Upon
approval of the 2009 Plan by the Company’s stockholders, the stock options
submitted pursuant to the Equity Award Exchange Offer were cancelled and the
RSUs became fully vested.
On August
26, 2009 the Compensation Committee of the Board of Directors approved an Equity
Award Exchange Offer Program for all U.S. employees, whereby each employee was
given an opportunity to exchange his outstanding stock options that had been
granted under the Company’s 1998 Stock Incentive Plan, as amended (“1998 Plan”),
to purchase shares of Genta common stock for new replacement RSUs. All eligible
employees submitted their eligible stock options for cancellation, and
accordingly, each employee was granted a RSU award on August 31, 2009. The
surrender of the options was accounted for as a modification of an award. The
Company determined the compensation cost of the modification as the difference
in the fair value of the options immediately before the modification and the
fair value of the RSUs immediately after the modification. A charge of $8.2
million was recorded in the Consolidated Statement of Operations related to the
modification of awards that were vested as of the modification date. The
incremental cost for awards that were not vested as of the modification date
will be expensed over the remaining vesting period.
The
following table summarizes the RSU activity under the 2009 Plan for the three
months ended September 30, 2009:
Restricted Stock Units
|
|
Number of Shares
(in thousands)
|
|
|
Weighted Average
Grant Date Fair
Value per Share
|
|
Outstanding nonvested
RSUs at July 1, 2009
|
|
|
- |
|
|
|
- |
|
Granted
|
|
|
56,378 |
|
|
$ |
0.395 |
|
Vested
|
|
|
(6,512 |
) |
|
$ |
0.395 |
|
Forfeited
or expired
|
|
|
- |
|
|
|
- |
|
Outstanding nonvested
RSUs at September 30, 2009
|
|
|
49,866 |
|
|
$ |
0.395 |
|
Based on
the closing price of Genta common stock of $1.00 per share on September 30,
2009, the intrinsic value of the nonvested RSUs at September 30, 2009 is $49.9
million. As of September 30, 2009, there was approximately $8.5 million of total
unrecognized compensation cost related to non-vested share-based compensation
granted under the 2009 Plan, which is expected to be recognized over a
weighted-average period of 0.8 years.
GENTA
INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
Stock
options were also awarded to employees during the three months ended September
30, 2009. Option awards were granted with an exercise price equal to the fair
market price of the Company’s common stock on the date of the grant; all options
granted had contractual terms of ten years from the date of the
grant. These awards were granted with the following vesting schedule:
25% vests in three equal installments on November 21, 2009, March 22, 2010 and
May 17, 2010, 25% vests on August 31, 2010, 25% vests on August 31, 2011 and 25%
vests on August 31, 2012. The following table summarizes the stock option
activity under the 2009 Plan for the three months ended September 30,
2009:
Stock Options
|
|
Number of
Shares
(in
thousands)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
(in years)
|
|
|
Aggregate
Intrinsic
Value
(in
thousands)
|
|
Outstanding
at July 1, 2009
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
Granted
|
|
|
300 |
|
|
$ |
0.77 |
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2009
|
|
|
300 |
|
|
$ |
0.77 |
|
|
|
10 |
|
|
$ |
69 |
|
1998
Stock Incentive Plan
Pursuant
to the 1998 Plan, 68 thousand shares had been provided for the grant of stock
options to employees, directors, consultants and advisors of the Company. As of
May 27, 2008, the authorization to provide grants under the 1998 Plan expired.
With the completion of the Equity Award Exchange Offer Program, virtually all
options under the 1998 Plan have been cancelled.
The
following table summarizes the option activity under the 1998 Plan as of
September 30, 2009 and changes during the nine months then ended:
Stock Options
|
|
Number of
Shares
(in thousands)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
(in years)
|
|
|
Aggregate
Intrinsic Value
(in thousands)
|
|
Outstanding
at January 1, 2009
|
|
|
37 |
|
|
$ |
1,191.50 |
|
|
|
|
|
|
|
|
|
Granted
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
(37 |
) |
|
|
1,191.50 |
|
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2009
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
— |
|
The
following table summarizes the restricted stock unit (RSU) activity under the
1998 Plan as of September 30, 2009 and changes during the nine months then
ended:
Restricted Stock Units
|
|
Number of
Shares
(in thousands)
|
|
|
Weighted
Average
Grant Date
Fair Value
per Share
|
|
Outstanding nonvested
RSUs at January 1, 2009
|
|
|
5 |
|
|
$ |
20.50 |
|
Granted
|
|
|
— |
|
|
|
— |
|
Vested
|
|
|
(5
|
) |
|
- |
20.50 |
|
Forfeited
or expired
|
|
|
— |
|
|
|
— |
|
Outstanding nonvested
RSUs at September 30, 2009
|
|
|
- |
|
|
- |
- |
|
GENTA
INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
1998
Non-Employee Directors’ Plan
Pursuant
to the Company’s 1998 Non-Employee Directors’ Plan as amended (the “Directors’
Plan”), 12 thousand shares have been provided for the grant of non-qualified
stock options to the Company’s non-employee members of the Board of Directors.
Upon stockholder
approval of the 2009 Plan, the Directors’ Plan was terminated.
The
following table summarizes the option activity under the Directors’ Plan as of
September 30, 2009 and changes during the nine months then ended:
Stock Options
|
|
Number of
Shares
(in thousands)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
(in years)
|
|
|
Aggregate
Intrinsic Value
(in thousands)
|
|
Outstanding
at January 1, 2009
|
|
|
2 |
|
|
$ |
1,130.47 |
|
|
|
|
|
|
|
|
|
Granted
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
(2
|
) |
|
$ |
1,130.47 |
|
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2009
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
— |
|
The Company estimates the
fair value of each stock option award on the date of the grant using the
Black-Scholes option valuation model. Expected volatilities are based on the
historical volatility of the Company’s common stock over a period commensurate
with the options’ expected term. The expected term represents the period of time
that options granted are expected to be outstanding and is calculated in
accordance with the SEC guidance provided in the SEC’s Staff Accounting Bulletin
107, (“SAB 107”) and Staff Accounting Bulletin 110 (“SAB 110”), using a
“simplified” method. The Company will continue to use the simplified method as
it does not have sufficient historical exercise data to provide a reasonable
basis upon which to estimate an expected term. The risk-free interest rate
assumption is based upon observed interest rates appropriate for the expected
term of the Company’s stock options. The following table summarizes the
weighted-average assumptions used in the Black-Scholes model for options granted
during the nine months ended September 30, 2009:
Expected
volatility
|
|
|
193 |
% |
Expected
dividends
|
|
|
- |
|
Expected
term (in years)
|
|
|
6.25 |
|
Risk-free
rate
|
|
|
2.6 |
% |
With the
implementation of the Equity Award Exchange programs, outstanding stock option
awards granted under the Directors’ Plan and 1998 Plan were exchanged for grants
of new RSUs. Incremental compensation cost for the new RSUs was measured as the
excess of the fair value of the RSUs over the fair value of the stock option
awards on the date of exchange. The incremental compensation cost of the RSUs is
being recognized over the remaining amortization period of the stock option
awards.
GENTA
INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
Share-based
compensation expense recognized for the three and nine months ended September
30, 2009 and 2008, respectively, was comprised as follows:
|
|
Three months ended
September 30
|
|
|
Nine months ended
September 30
|
|
($
thousands, except per share data)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development expenses
|
|
$ |
2,918 |
|
|
$ |
35 |
|
|
$ |
2,950 |
|
|
$ |
131 |
|
Selling,
general and administrative
|
|
|
6,599 |
|
|
|
92 |
|
|
|
6,674 |
|
|
|
301 |
|
Total
share-based compensation expense
|
|
$ |
9,517 |
|
|
$ |
127 |
|
|
$ |
9,624 |
|
|
$ |
432 |
|
Share-based
compensation expense, per basic and diluted common share
|
|
$ |
0.07 |
|
|
$ |
0.17 |
|
|
$ |
0.13 |
|
|
$ |
0.60 |
|
8.
|
Commitments and
Contingencies
|
Litigation
and Potential Claims
In September 2008, several shareholders
of the Company, on behalf of themselves and all others similarly situated, filed
a class action complaint against the Company, the Board of Directors, and
certain of its executive officers in Superior Court of New Jersey, captioned
Collins v. Warrell, Docket No. L-3046-08. The complaint alleged that in issuing
convertible notes, the Board of Directors, and certain officers breached their
fiduciary duties, and the Company aided and abetted the breach of fiduciary
duty. On March 20, 2009, the Superior Court of New Jersey granted the
motion of the Company to dismiss the class action complaint and dismissed the
complaint with prejudice. On April 30, 2009, the plaintiffs filed a notice of
appeal with the Appellate Division. On May 13, 2009, the plaintiffs filed a
motion for relief from judgment based on a claim of new evidence, which was
denied on June 12, 2009. The plaintiffs also asked the Appellate Division
for a temporary remand to permit the Superior Court judge to resolve the issues
of the new evidence plaintiffs sought to raise and the Appellate Division
granted the motion for temporary remand. Following briefing and a hearing, the
Superior Court denied the motion for relief from judgment on August 28, 2009.
Thus, this matter will proceed in the Appellate Division. Plaintiffs' brief
before the Appellate Division was due on October 28, 2009, and the Company's
responsive brief is due on November 30, 2009. The Company intends to
continue its vigorous defense of this matter.
In
November 2008, a complaint against the Company and its transfer agent, BNY
Mellon Shareholder Services, was filed in the Supreme Court of the State of New
York by an individual stockholder. The complaint alleges that the Company and
its transfer agent caused or contributed to losses suffered by the stockholder.
The Company denies the allegations of this complaint and intends to vigorously
defend this lawsuit.
9.
|
Supplemental Disclosure of Cash
Flows Information and Non-cash Investing and Financing
Activities
|
No
interest or income taxes were paid with cash during the nine months ended
September 30, 2009 and 2008, respectively. On March 9, 2009, the
Company issued approximately $386 thousand of 2008 Notes in lieu of interest due
on its 2008 Notes. On June 9, 2009, the Company issued approximately $125
thousand of 2008 Notes in lieu of interest due on its 2008 Notes. On September
2, 2009, the Company issued approximately $175 thousand of April 2009 Notes in
lieu of interest due on its April 2009 Notes. On September 9, 2009, the Company
issued approximately $81 thousand of 2008 Notes in lieu of interest due on its
2008 Notes.
From
January 1, 2009 through September 30, 2009, holders of the Company’s convertible
notes voluntarily converted approximately $15.9 million, resulting in an
issuance of 118.3 million shares of common stock.
10. Subsequent Events
On
October 1, 2009, the Company entered into an amendment of its Lease Agreement
with The Connell Company, whereby the Company extended its lease of office space
in Berkeley Heights, New Jersey for an additional six months until August 31,
2010.
GENTA
INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
From
October 1, 2009 through October 31, 2009, holders of 2008 Notes have voluntarily
converted approximately $38 thousand of their 2008 Notes, resulting in an
issuance of approximately 383 thousand shares of common stock. At October 31,
2009, approximately $2.1 million of the 2008 notes were
outstanding.
From
October 1, 2009 through October 31, 2009 holders of April 2009 Notes have
voluntarily converted approximately $0.4 million of their April 2009 Notes,
resulting in an issuance of approximately 4.5 million shares of common stock. In
addition, from October 1, 2009 through October 31, 2009, warrants associated
with the April 2009 Notes were exercised, resulting in the issuance of 1.9
million shares. At October 31, 2009, approximately $5.0 million of the April
2009 Notes were outstanding.
GENTA
INCORPORATED
54,713,329
Shares of Common Stock
PROSPECTUS
December
23, 2009