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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-19635
GENTA INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CERTIFICATE OF INCORPORATION)
Delaware 33-0326866
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
Two Oak Way
Berkeley Heights, New Jersey 07922
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(908) 286-9800
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- ------
As of August 7, 2001, the registrant had 54,523,330 shares of common stock
outstanding.
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GENTA INCORPORATED
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION Page
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Item 1. Financial Statements
Condensed Consolidated Balance Sheets at June 30, 2001
(Unaudited) and December 31, 2000 3
Condensed Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 2001 and 2000 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2001 and 2000 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
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GENTA INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
(In thousands, except per share data) 2001 2000
----------- ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents ................................................... $ 9,906 $ 19,025
Short term investments ...................................................... 27,695 31,174
Accounts receivable ......................................................... 12 --
Notes receivable ............................................................ 200 1,338
Prepaid expenses ............................................................ 931 425
--------- ---------
Total current assets ........................................................... 38,744 51,962
Property and equipment, net .................................................... 1,023 758
Intangibles, net ............................................................... 2,524 2,923
Restricted cash relating to office lease ....................................... 247 247
Deposits and other assets ...................................................... -- 50
Prepaid royalties .............................................................. 1,268 1,268
--------- ---------
Total assets ................................................................... $ 43,806 $ 57,208
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................ $ 3,594 $ 614
Accrued compensation ........................................................ 150 225
Other accrued expenses ...................................................... 489 2,227
Liabilities of liquidated foreign subsidiary, net ........................... 575 575
--------- ---------
Total current liabilities ...................................................... 4,808 3,641
Stockholders' equity:
Preferred stock, Series A convertible preferred stock, $.001 par value; 5,000
shares authorized, 261 shares issued and
outstanding at June 30, 2001 and December 31, 2000, respectively;
liquidation value of $13,060 .............................................. -- --
Common stock, $.001 par value; 95,000 shares authorized,
54,013 and 51,085 shares issued and outstanding at
June 30, 2001 and December 31, 2000, respectively ........................ 54 51
Additional paid-in capital .................................................. 210,621 206,452
Accumulated deficit ......................................................... (170,310) (151,949)
Deferred compensation ....................................................... (1,492) (1,082)
Accumulated other comprehensive income ...................................... 125 95
--------- ---------
Total stockholders' equity ..................................................... 38,998 53,567
--------- ---------
Total liabilities and stockholders' equity ..................................... $ 43,806 $ 57,208
========= =========
See accompanying notes to condensed consolidated financial statements.
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GENTA INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
(In thousands, except per share data) 2001 2000 2001 2000
-------- -------- -------- --------
Revenues:
License fees ..................................... $ -- $ -- $ 70 $ --
Royalty fees ..................................... 12 -- 12 --
-------- -------- -------- --------
12 -- 82 --
Costs and expenses:
Research and development ......................... 9,318 2,048 14,974 2,554
General and administrative ....................... 1,811 977 3,184 1,830
Promega settlement ............................... -- -- 1,000 --
Compensation expense related to stock options .... 243 66 394 8,057
-------- -------- -------- --------
11,372 3,091 19,552 12,441
-------- -------- -------- --------
Loss from operations ................................ (11,360) (3,091) (19,470) (12,441)
Equity in net income of joint venture ............... -- -- -- 502
Other income, principally net interest income ....... 457 152 1,108 263
-------- -------- -------- --------
Net loss ............................................ (10,903) (2,939) (18,362) (11,676)
Preferred stock dividends ........................... -- -- -- (3,443)
-------- -------- -------- --------
Net loss applicable to common shares ................ $(10,903) $ (2,939) $(18,362) $(15,119)
======== ======== ======== ========
Net loss per common share ........................... $ (0.21) $ (0.09) $ (0.35) $ (0.49)
======== ======== ======== ========
Shares used in computing net loss per common share .. 52,924 33,373 52,100 30,588
======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements.
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GENTA INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED JUNE 30,
(In thousands) 2001 2000
-------- --------
OPERATING ACTIVITIES
Net loss ............................................................. $(18,362) $(11,676)
Items reflected in net loss not requiring cash:
Depreciation and amortization ..................................... 518 166
Loss on disposal of fixed assets .................................. 9 --
Loss on Promega settlement ........................................ 1,000 --
Compensation expense related to stock options ..................... 394 8,057
Changes in operating assets and liabilities .......................... 1,182 (100)
-------- --------
Net cash used in operating activities ................................ (15,259) (3,553)
INVESTING ACTIVITIES
Purchase of available-for-sale short-term investments .............. (11,304) (2,296)
Maturities and sales of available-for-sale short-term investments .. 14,468 1,018
Purchase of property and equipment ................................. (392) (20)
Principal payments received on notes receivable .................... -- 80
Purchase of intangibles ............................................ -- (400)
-------- --------
Net cash provided by (used in) investing activities .................. 2,772 (1,618)
FINANCING ACTIVITIES
Issuance of common stock upon exercise of warrants and options ..... 3,368 1,970
-------- --------
Net cash provided by financing activities ............................ 3,368 1,970
Decrease in cash and cash equivalents ................................ (9,119) (3,201)
Cash and cash equivalents at beginning of period ..................... 19,025 10,101
-------- --------
Cash and cash equivalents at end of period ........................... $ 9,906 $ 6,900
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid ........................................................ $ -- $ 5
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Market value change of available-for-sale equity securities .......... (3) --
Market value change of available-for-sale short-term investments ..... (33) --
Common stock issued in payment of hiring bonus ....................... 50 --
Common stock issued in payment of dividends on preferred stock ....... -- 953
Common stock issued in payment of patent portfolios .................. -- 2,484
Preferred stock dividends accrued .................................... -- 3,443
See accompanying notes to condensed consolidated financial statements.
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GENTA INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
(UNAUDITED)
(1) BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements of Genta
Incorporated, a Delaware corporation ("Genta" or the "Company"), presented
herein have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial information and
with the instructions to Form 10-Q. Accordingly, they do not include all of the
information and note disclosures required to be presented for complete financial
statements. The accompanying financial statements reflect all adjustments
(consisting only of normal recurring accruals), which are, in the opinion of
management, necessary for a fair presentation of the results for the interim
periods presented.
The unaudited condensed 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 year ended December 31, 2000 (the "2000 Form 10-K").
The Company has experienced significant quarterly fluctuations in operating
results and it expects that these fluctuations will continue.
Net Loss Per Common Share
Basic and diluted loss per common share are identical for the three and six
months ended June 30, 2000 and 2001 as potentially dilutive securities,
including options, warrants and convertible preferred stock have been excluded
in the calculation of the net loss per common share due to their anti-dilutive
effect.
Recent Accounting Pronouncements
The Company implemented SFAS 133 "Accounting for Derivative Instruments and
Hedging Activities," as amended, on January 1, 2001 and did not have any
derivative instruments that resulted in a transition adjustment.
In June, 2001, the Financial Accounting Standards Board approved for
issuance Statement of Financial Accounting Standards 141 (SFAS 141), "Business
Combinations". This standard eliminated the pooling method of accounting for
business combinations initiated after June 30, 2001. The Company intends to
adopt the provisions of SFAS 141 as of the effective date but does not expect
SFAS 141 to have a material effect on the Company's financial position or
results of operations.
Also in June 2001, the Financial Accounting Standards Board issued SFAS
142, "Goodwill and Other Intangible Assets". SFAS 142 requires periodic
evaluation of goodwill and indefinite lived intangible assets for impairment and
discontinues amortization of such intangibles. SFAS 142 will be effective for
fiscal years beginning after December 15, 2001 and the Company intends to adopt
the provisions of SFAS 142 as of the effective date. The impact of this
pronouncement on the Company's financial position and results of operations is
currently being evaluated.
(2) DISCONTINUED OPERATIONS
On March 19, 1999, the Company entered into an agreement (the "JBL
Agreement") with Promega Corporation ("Promega") whereby a wholly-owned
subsidiary of Promega acquired substantially all of the assets and assumed
certain liabilities of JBL Scientific, Inc. ("JBL"), a Genta wholly-owned
subsidiary. Consideration for this transaction
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consisted of approximately $4.8 million in cash, a 7% promissory note for $1.2
million, and certain pharmaceutical development services in support of the
Company's development activities. The transaction was completed on May 10, 1999
and the Company recognized $1.6 million as gain on sale of discontinued
operations.
During May 2000, Promega notified Genta regarding two claims against Genta
and its wholly-owned subsidiary, Genko Scientific, Inc. (f/k/a JBL Scientific,
Inc.) ("Genko"), for indemnifiable damages in the aggregate amount of $2.82
million under the JBL Agreement. Promega announced that it intended to offset
against the principal amount due under its $1.2 million promissory note issued
as partial consideration for the Genko assets, which note provided for payment
of $.7 million on June 30, 2000. Promega further demanded an additional $1.62
million in settlement of this matter. Genta believed that Promega's claims were
without merit and, accordingly, on October 16, 2000, Genta filed suit in the US
District Court of California for nonpayment on the $1.2 million promissory note
plus accrued interest. On November 6, 2000, Promega filed a counter suit against
the Company in the US District Court of California for the indemnifiable damages
discussed above. During the first quarter of 2001, the Company agreed to resolve
the matter with Promega and, in connection therewith, agreed to restructure its
$1.2 million promissory note receivable to provide for a $.2 million
non-interest bearing note due upon final resolution of certain environmental
issues related to JBL as more fully discussed in Note 6, and forgive all accrued
interest. The transaction resulted in a non-recurring charge of $1.0 million for
the quarter ended March 31, 2001.
In connection with the JBL Agreement, .25 million stock options to
purchase Genta common stock (the "Options") were granted to the former
employees of JBL pursuant to an ongoing service arrangement between Promega and
the Company. The Options were accounted for pursuant to guidelines in Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," and EITF 96-18 using the Black-Scholes option pricing model, had
an exercise price of $2.03 per share, a one-year vesting period and an
expiration date two years after the date of grant. The estimated fair value of
the Options was based on services provided and aggregated $1.7 million as of
June 30, 2000. Fluctuations in the market price of the common stock underlying
the Options resulted in a charge of $.948 million to compensation expense
related to stock options for the six months ended June 30, 2000. The Options
were fully vested on May 9, 2000 and, accordingly, no additional compensation
expense related to stock options has been recognized for the six months ended
June 30, 2001.
(3) SHORT-TERM INVESTMENTS
All corporate debt securities at June 30, 2001, mature within one year or
less. Information in the aggregate with respect to these investments is
presented below (in thousands):
Gross Gross
Amortized unrealized unrealized Estimated
costs gains losses fair value
--------- ---------- ---------- ----------
$ 27,570 $ 163 $ 38 $ 27,695
======== ===== ==== ========
(4) EQUITY IN NET INCOME OF JOINT VENTURE (GENTA JAGO)
Genta Jago Technologies B.V. ("Genta Jago") is a joint venture formed by
Skyepharma PLC and Genta. On March 4, 1999, SkyePharma PLC (on behalf of itself
and its affiliates) entered into an interim agreement with Genta (the "Interim
JV Agreement") pursuant to which the parties to the joint venture released each
other from all liability relating to unpaid development costs and funding
obligations of Genta Jago. Under the terms of the Interim JV Agreement,
SkyePharma PLC assumed responsibility for substantially all the obligations of
the joint venture to third parties as well as further development of the product
line. Pursuant to the terms of the agreement, earnings of the joint venture are
to be allocated equally between the two parties. Accordingly, Genta recognized
$.502 million as its equity in net income of the joint venture during the first
quarter of 2000. Since the first quarter of 2000, there have been no earnings of
the joint venture to be allocated between the two parties.
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(5) COMPREHENSIVE LOSS
The following sets forth the calculation of comprehensive loss for the
respective periods presented below:
(In thousands) Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2001 2000 2001 2000
-------- -------- -------- --------
Net loss ............................ (10,903) (2,939) (18,362) (11,676)
Unrealized (loss) gain on market
value change on available-for-sale
short-term investments .............. (35) -- 91 --
-------- -------- -------- --------
Total comprehensive loss ............ $(10,938) $ (2,939) $(18,271) $(11,676)
======== ======== ======== ========
(6) COMMITMENTS AND CONTINGENCIES
LITIGATION
In October 1996, JBL retained a chemical consulting firm to advise it with
respect to an incident of soil and groundwater contamination (the "Spill").
Sampling conducted at the JBL facility revealed the presence of chloroform and
perchloroethylenes ("PCEs") in the soil and groundwater at this site. A
semi-annual groundwater-monitoring program is being conducted, under the
supervision of the California Regional Water Quality Control Board ("the Board")
for the purpose of determining whether the levels of chloroform and PCEs have
decreased over time. The results of the latest sampling conducted by JBL shows
that PCEs and chloroform have decreased in all but one of the monitoring sites.
Accordingly, in April 2001, the Company requested closure of this matter from
the Board as the current sampling results indicate that PCEs and chloroform have
decreased in all of the monitoring sites. The Company has agreed to indemnify
Promega with respect to this matter and, in the opinion of management, has
adequately accrued to cover remedial expenses as of June 30, 2001. Management
also believes that any residual expense stemming from further investigation or
remediation of this matter will not have a material adverse effect on the
business of the Company, although there can be no assurance thereof.
JBL received notice on October 16, 1998 from Region IX of the Environmental
Protection Agency (the "EPA") that it had been identified as a potentially
responsible party ("PRP") at the Casmalia Disposal Site located in Santa
Barbara, California. The EPA has designated JBL as a de minimis PRP and the
Company expects to receive a revised settlement proposal from the EPA later this
year. While the terms of the EPA settlement have not been finalized, management
believes that such terms shall provide for standard contribution protection and
release provisions. The Company has agreed to indemnify Promega with respect to
this matter and management believes that any residual expense stemming from
further investigation or remediation of this matter will not have a material
adverse effect on the business of the Company, although there can be no
assurance thereof.
During 1995, Genta Pharmaceuticals Europe S.A. ("Genta Europe"), a
wholly-owned subsidiary of the Company, received funding in the form of a loan
from L'Agence Nationale de Valorisayion de la Recherche ("ANVAR"), a French
government agency, in the amount of FF5.4 million (or $.7 million at June 30,
2001) with a scheduled maturity of December 31, 2002. The utilization of the
proceeds was intended to fund research and development activities pursuant to an
agreement between ANVAR, Genta Europe and Genta (the "ANVAR Agreement"). In
October 1996, in connection with a restructuring of the Company's operations,
Genta terminated all scientific personnel of Genta Europe. ANVAR asserted in
February 1998 that Genta Europe was not in compliance with the ANVAR Agreement,
and that ANVAR might request immediate repayment of the loan. In July 1998,
ANVAR notified Genta Europe of its demand for accelerated repayment of the loan
in the amount of FF4.2 million (or $.54 million at June 30, 2001) and
subsequently notified the Company that it was liable as a guarantor on the note.
The Company does not believe that ANVAR is entitled to accelerated repayment
under the terms of the ANVAR Agreement and it is currently negotiating with
ANVAR to achieve a mutually satisfactory resolution, although there can be no
assurance thereof.
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On June 30, 1998, Marseille Amenagement, a company affiliated with the city
of Marseilles, France, filed suit in France to evict Genta Europe from its
facilities in Marseilles and to demand payment of alleged back rent due and of a
lease guarantee for nine years' rent. Following the filing of this claim and in
consideration of the request for repayment of the loan from ANVAR, Genta
Europe's Board of Directors directed the management to declare a "Cessation of
Payment." Under this procedure, Genta Europe ceased any operations and
terminated its only employee. A liquidator was appointed by the Court to take
control of any assets of Genta Europe and to make payment to creditors. In
December 1998, the Court in Marseilles dismissed the case against Genta Europe
and indicated that it had no jurisdiction against Genta Incorporated. In August
1999, Marseille Amenagement instituted legal proceedings against the Company in
the Commercial Court of Marseilles, alleging back rent and early termination
receivables aggregating FF2.5 million or $.3 million at June 30, 2001. A court
hearing took place on June 11, 2001 but no ruling is expected prior to September
2001. As of June 30, 2001, the Company has accrued a net liability of
approximately $.58 million related to the liquidated subsidiary. Management
believes that this contingency is adequately reserved, although there can be no
assurance thereof.
PURCHASE COMMITMENTS
During 2001 the Company entered into various commitments with respect to
the development and manufacture of certain Gallium-containing compounds and as a
result incurred R&D expense of $.34 million related to these commitments through
June 30, 2001. The Company has remaining commitments under these agreements
aggregating $.89 million as of June 30, 2001.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Since its inception in February 1988, the Company has devoted its principal
efforts toward drug discovery and research and development. The Company has been
unprofitable to date and expects to incur substantial operating losses for the
next several years due to continued requirements for ongoing research and
development activities, preclinical and clinical testing activities, regulatory
activities, possible establishment of manufacturing activities and a sales and
marketing organization. From the period since its inception to June 30, 2001,
the Company has incurred a cumulative net loss of approximately $170.3 million.
The Company has experienced significant quarterly fluctuations in operating
results and it expects that these fluctuations in revenues, expenses and losses
will continue.
This Quarterly Report on Form 10-Q includes forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, including
statements regarding the expectations, beliefs, intentions or strategies
regarding the future. Without limiting the foregoing, the words "anticipates,"
"believes," "expects," "intends," "may" and "plans" and similar expressions are
intended to identify forward-looking statements. The Company intends that all
forward-looking statements be subject to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements reflect the Company's views as of the date they are made with respect
to future events, but are subject to many risks and uncertainties, which could
cause the actual results of the Company to differ materially from any future
results expressed or implied by such forward-looking statements. For example,
the results obtained in pre-clinical or clinical studies may not be indicative
of results that will be obtained in future clinical trials, and delays in the
initiation or completion of clinical trials may occur as a result of many
factors. Further examples of such risks and uncertainties also include, but are
not limited to: the obtaining of sufficient financing to maintain the Company's
planned operations; timely development, receipt of necessary regulatory
approvals, and acceptance of new products; the successful application of the
Company's technology to produce new products; the obtaining of proprietary
protection for any such technology and products; the impact of competitive
products and pricing and reimbursement policies; and changing market conditions.
Additional risks and uncertainties are set forth under "Certain Trends and
Uncertainties". The Company does not undertake to update forward- looking
statements. Although the Company believes that the forward-looking statements
contained herein are reasonable, it can give no assurances that the Company's
expectations are correct.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2001 AND 2000
REVENUES. Royalty fees associated with worldwide non-exclusive license
agreements entered into during 2000 and 2001 were recognized in the second
quarter of 2001. No such agreements were in place during the first quarter of
2000.
COSTS AND EXPENSES. Costs and expenses for the second quarter of 2001
increased 268% to $11.372 million as compared to the second quarter of 2000. The
increase in costs and expenses related mainly to increased drug supply costs,
investigator and monitor fees for current on-going clinical studies, increased
payroll costs associated with additional headcount along and increased marketing
expenses.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses for
the second quarter of 2001 increased 355% to $9.318 million as compared to the
second quarter of 2000. The increase in research and development expenses is
primarily attributable to drug supply costs, investigator and monitor fees for
current on-going clinical studies, and increased payroll costs associated with
additional headcount.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the second quarter of 2001 increased 85% to $1.811 million as compared to
the second quarter of 2000. The increase in general and administrative expenses
is primarily related to payroll costs associated with additional headcount and
increased marketing expenses.
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COMPENSATION EXPENSE RELATED TO STOCK OPTIONS. Compensation expense related
to stock options for the second quarter of 2001 increased 268% to $.243 million
as compared to the second quarter of 2000. The increase in compensation expense
related to stock options is primarily due to the fluctuations in the market
price of the common stock underlying the stock options for the quarters
immediately preceding June 30, 2001 and June 20, 2000.
OTHER INCOME. Net interest income increased 201% to $.457 million for the
quarter ended June 30, 2001 as compared to the comparable prior period,
principally as a result of higher average balances of earning assets.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
REVENUES. License and royalty fees associated with worldwide non-exclusive
license agreements entered into during 2000 and 2001 were recognized in the
first six months of 2001, including an upfront cash payment. There were no such
agreements in effect during the first half of 2000.
COSTS AND EXPENSES. Costs and expenses for the first six months of 2001
increased 57% to $19.552 million as compared to the first six months of 2000.
The increase in costs and expenses related mainly to increased drug supply
costs, investigator and monitor fees for current on-going clinical studies,
increased payroll costs associated with additional headcount and increased
marketing expenses.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses for
first six months of 2001 increased 486% to $14.974 million the first six months
of 2000. The increase in research and development expenses is primarily
attributable to drug supply costs, investigator and monitor fees for current
on-going clinical studies, and increased payroll costs associated with
additional headcount.
As a result of the initiation of Phase 3 clinical trials for melanoma,
chronic lymphocytic leukemia (CLL) and multiple myeloma, it is anticipated that
future research and development expenses will continue to escalate at an
increasing rate as the development program for Genasense(TM) expands and more
patients are enrolled in clinical trials. Furthermore, the Company is pursuing
other opportunities for new product development candidates which pursuits, if
successful, will require additional research and development expenses. There can
be no assurance that the trials will proceed in this manner or that the Company
will initiate new development programs. Ongoing Phase 3 clinical trials and
related drug supply costs were minimal in the six months ended June 30, 2000.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for first six months of 2001 increased 74% to $3.184 million as compared to the
first six months of 2000. The increase is primarily related to payroll costs
associated with additional headcount and increased marketing expenses.
PROMEGA SETTLEMENT. During the first quarter of 2001, the Company agreed to
resolve the matter more fully discussed in Note 2, and in connection therewith,
the Company agreed to restructure its $1.2 million promissory note receivable to
provide for a $.2 million non-interest bearing note due upon final resolution of
certain environmental issues related to JBL as more fully discussed in Note 6,
and forgiveness of all accrued interest. The transaction resulted in a
non-recurring charge of $1.0 million for the quarter ended March 31, 2001.
COMPENSATION EXPENSE RELATED TO STOCK OPTIONS. Compensation expense related
to stock options for first six months decreased 95% to $.394 million as compared
to the first six months of 2000. The decrease in compensation expense related to
stock options is primarily attributable to the acceleration of stock options for
retiring Board members in the first quarter of 2000.
EQUITY IN NET INCOME OF JOINT VENTURE. Genta recognized approximately $.502
million as its equity in net income of the joint venture for the six months
ended June 30, 2000, as more fully discussed in Note 4.
OTHER INCOME. Net interest income increased 321% to $1.108 million for the
first six months of 2001 as compared to the comparable prior period, principally
as a result of higher average balances of earning assets.
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LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations primarily from
private and public offerings of its equity securities. Cumulative cash provided
from these offerings totaled approximately $176 million through June 30, 2001,
including net proceeds of $40.0 million received in 2000 and $10.4 million
received in 1999. At June 30, 2001, the Company had cash, cash equivalents and
short-term investments totaling $37.6 million compared to approximately $50.2
million at December 31, 2000. Management believes the Company will have
sufficient liquidity to maintain its present level of operations into the second
quarter of 2002.
The Company's principal expenditures relate to its research and development
activities, which includes the Company's current and on-going clinical trials.
The Company expects this to continue at an increasing rate until its lead
anti-cancer drug, Genasense(TM), is approved for commercialization.
Certain parties with whom the Company has agreements have claimed default
and, should the Company be obligated to pay these claims or should the Company
engage legal services to defend or negotiate its positions or both, its ability
to continue operations could be significantly reduced or shortened. See "MD&A --
Certain Trends and Uncertainties -- Claims of Genta's Default Under Various
Agreements."
The Company anticipates that significant additional sources of financing,
including equity financing, will be required in order for the Company to
continue its planned operations beyond the second quarter of 2002. The Company
also anticipates seeking additional product development opportunities from
external sources. Such acquisitions may consume cash reserves or require
additional cash or equity. The Company's working capital and additional funding
requirements will depend upon numerous factors, including: (i) the progress of
the Company's research and development programs; (ii) the timing and results of
preclinical testing and clinical trials; (iii) the level of resources that the
Company devotes to sales and marketing capabilities; (iv) technological
advances; (v) the activities of competitors; and (vi) the ability of the Company
to establish and maintain collaborative arrangements with others to fund certain
research and development efforts, to conduct clinical trials, to obtain
regulatory approvals and, if such approvals are obtained, to manufacture and
market products. See "MD&A -- Certain Trends and Uncertainties -- Our Business
Will Suffer if We Fail to Obtain Timely Funding."
Management believes that successful development of the Company's Gallium
products franchise may yield substantial clinical and competitive advantages.
Accordingly, during 2001 the Company entered into various commitments with
respect to the development and manufacture of certain Gallium-containing
compounds and as a result incurred R&D expense of $.34 million related to these
commitments through June 30, 2001. The Company has remaining commitments under
these agreements aggregating $.89 million as of June 30, 2001.
If the Company successfully secures sufficient levels of collaborative
revenues and other sources of financing, it expects to use such financing to
continue and expand its ongoing research and development activities, preclinical
and clinical testing activities, the manufacturing and/or market introduction of
potential products and expansion of its administrative activities.
CERTAIN TRENDS AND UNCERTAINTIES
In addition to the other information contained in this Quarterly Report on
Form 10-Q, the following factors should be considered carefully.
The Company may be unsuccessful in our efforts to commercialize our
pharmaceutical products, such as Ganite(TM) and Genasense(TM).
The commercialization of our pharmaceutical products involves a number of
significant challenges. In particular, our ability to commercialize products,
such as Ganite(TM) and Genasense(TM), depends, in large part, on the success of
our clinical development programs, and our sales and marketing efforts to
physicians, patients and third-party
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payors. A number of factors could impact these efforts, including our ability to
demonstrate clinically that our products have utility beyond current
indications, delays by regulatory authorities in granting marketing approvals,
our limited financial resources and sales and marketing experience relative to
our competitors, perceived differences between our products and those of our
competitors, the availability and level of reimbursement of our products by
third-party payors, incidents of adverse reactions, side effects or misuse of
our products and the unfavorable publicity that could result, or the occurrence
of manufacturing, supply or distribution disruptions. In particular, the Company
has said that it intends to be a direct marketer of its products in the United
States. Our inability to build a sales force capable of marketing our
pharmaceutical products will adversely affect our sales and limit the commercial
success of our products.
Ultimately, our efforts may not prove to be as effective as the efforts of
our competitors. In the United States and elsewhere, our products face
significant competition in the marketplace. The conditions that our products
treat, 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, 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 related health care
benefits to the patient. Even if we are able to increase sales over the next
several years, we cannot be sure that such sales and other revenue will reach a
level at which we will attain profitability.
Our business will suffer if we fail to obtain timely funding.
Our Company's operations to date have consumed substantial amounts of cash.
Based on our current operating plan, we believe that our available resources,
including the proceeds from two private offerings in September and November
2000, will be adequate to satisfy our capital needs into the second quarter of
2002. Our future capital requirements will depend on the results of our research
and development activities, pre-clinical studies and bioequivalence and clinical
trials, competitive and technological advances, and regulatory processes of the
FDA and other regulatory authority. In order to commercialize our products, we
will need to raise additional financing. We may seek additional financing
through public and private resources, including debt or equity financing, or
through collaborative or other arrangements with research institutions and
corporate partners. We may not be able to obtain adequate funds for our
operations from these sources when needed or on acceptable terms. If we raise
additional capital by issuing equity, or securities convertible into equity, the
ownership interest of existing Genta stockholders will be subject to further
dilution and share prices may decline. If we are unable to raise additional
financing, we will need to do the following:
- delay, scale back or eliminate some or all of our research and product
development programs;
- license third parties to commercialize products or technologies that
we would otherwise seek to develop ourselves;
- sell Genta to a third party;
- to cease operations; or
- declare bankruptcy.
Many of our products are in an early stage of development.
Most of our resources have been dedicated to applying molecular biology and
medicinal chemistry to the research and development of potential antisense
pharmaceutical products based upon oligonucleotide technology. While we have
demonstrated the activity of antisense oligonucleotide technology in model
systems in vitro in animals, only one of these potential antisense
oligonucleotide products, Genasense(TM), has been tested in humans. 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.
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Clinical trials are costly and time consuming and are subject to delays.
Clinical trials are very costly and time-consuming. How quickly we are able
to complete a clinical study depends upon several factors, including the size of
the patient population, how easily patients can get to the site of the clinical
study, and the criteria for determining which patients are eligible to join the
study. Delays in patient enrollment could delay completion of a clinical study
and increase its costs, and could also delay the commercial sale of the drug
that is the subject of the clinical trial.
Our commencement and rate of completion of clinical trials also may be
delayed by many other factors, including the following:
- inability to obtain sufficient quantities of materials used for
clinical trials;
- inability to adequately monitor patient progress after treatment;
- unforeseen safety issues;
- the failure of the products to perform well during clinical trials;
and
- government or regulatory delays.
We cannot market and sell our products in the United States or in other
countries if we fail to obtain the necessary regulatory approvals.
The United States Food and Drug Administration and comparable agencies in
foreign countries impose substantial premarket approval requirements on the
introduction of pharmaceutical products through lengthy and detailed preclinical
and clinical testing procedures and other costly and time-consuming procedures.
Satisfaction of these requirements typically takes several years or more
depending upon the type, complexity and novelty of the product. While limited
trials of our products have produced favorable results, we cannot apply for FDA
approval to market any of our products under development until the product
successfully completes its preclinical and clinical trials. 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. If
we are not able to obtain regulatory approvals for use of our products under
development, or if the patient populations for which they are approved are not
sufficiently broad, the commercial success of our products could be limited.
We may be unable to obtain or enforce patents and other proprietary rights to
protect our business.
Our success will depend to a large extent on our ability to (1) obtain U.S.
and foreign patent or other proprietary protection for our technologies,
products and processes, (2) preserve trade secrets and (3) operate without
infringing the patent and other proprietary rights of third parties. Legal
standards relating to the validity of patents covering pharmaceutical and
biotechnological inventions and the scope of claims made under such patents are
still developing. There is no consistent policy regarding the breadth of claims
allowed in biotechnology patents. As a result, our ability to obtain and enforce
patents that protect our drugs is highly uncertain and involves complex legal
and factual questions.
We have more than 74 U.S. and international patents to aspects of our
technology, which includes novel compositions of matter, methods of large-scale
synthesis and methods of controlling gene expression. We may not receive any
issued patents based on pending or future applications. Our issued patents may
not contain claims sufficiently broad to protect us against competitors with
similar technology. Additionally, our patents, our partners' patents and patents
for which we have license rights may be challenged, narrowed, invalidated or
circumvented. Furthermore, rights granted under our patents may not cover
commercially valuable drugs or processes and may not provide us with any
competitive advantage.
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15
We may have to initiate arbitration or litigation to enforce our patent and
license rights. If our competitors file patent applications that claim
technology also claimed by us, we may have to participate in interference or
opposition proceedings to determine the priority of invention. An adverse
outcome could subject us to significant liabilities to third parties and require
us to cease using the technology or to license the disputed rights from third
parties. We may not be able to obtain any required licenses on commercially
acceptable terms or at all.
The cost to us of any litigation or proceeding relating to patent rights,
even if resolved in our favor, could be substantial. Some of our competitors may
be able to sustain the costs of complex patent litigation more effectively than
we can because of their substantially greater resources. Uncertainties resulting
from the initiation and continuation of any pending patent or related litigation
could have a material adverse effect on our ability to compete in the
marketplace.
We rely on our contractual collaborative arrangements with research
institutions and corporate partners for development and commercialization of our
products.
Our business strategy depends in part on our continued ability to develop
and maintain relationships with leading academic and research institutions and
independent researchers. The competition for such relationships is intense, and
we can give no assurances that we will be able to develop and maintain such
relationships on acceptable terms. We have entered into a number of
collaborative relationships relating to specific disease targets and other
research activities in order to augment our internal research capabilities and
to obtain access to specialized knowledge and expertise. The loss of any of
these collaborative relationships could have a material adverse effect on our
business.
Similarly, strategic alliances with corporate partners, primarily
pharmaceutical and biotechnology companies, may 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 alternative partners. 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
in the future may not be scientifically or commercially successful. We may be
unable to negotiate advantageous strategic alliances in the future. The absence
of, or failure of, strategic alliances could harm our efforts to develop and
commercialize our drugs.
The raw materials for our products are produced by a limited number of
suppliers.
The raw materials that we require to manufacture our drugs, particularly
oligonucleotides, are available from only a few suppliers, namely those with
access to our patented technology. If these few suppliers cease to provide us
with the necessary raw materials or fail to provide us with adequate supply of
materials at an acceptable price and quality, we could be materially adversely
affected.
The successful commercialization of our products will depend on obtaining
coverage and reimbursement for use of our products from third-party payors.
Our ability to commercialize drugs successfully will depend in part on the
extent to which various third parties are willing to reimburse patients for the
costs of our drugs and related treatments. These third parties 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
considered ways to change, and have changed, the manner in which health care
services are provided and paid for in the United States. In particular, these
third-party payors are increasingly attempting to contain health care costs by
limiting both coverage and the level of reimbursement for new therapeutic
products. In the future, it is possible that the government may institute price
controls and further limits on Medicare and Medicaid spending. These controls
and limits could affect the payments we collect from sales of our products.
Internationally, medical reimbursement systems vary significantly, with some
medical centers having fixed budgets, regardless of levels of patient treatment,
and other
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countries requiring application for, and approval of, government or third-party
reimbursement. Even if we or our partners 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 commercially acceptable quantities at
profitable prices.
We could become involved in time-consuming and expensive patent litigation
and adverse decisions in patent litigation could cause us to incur additional
costs and experience delays in bringing new drugs to market.
The pharmaceutical and biotechnology industries have been characterized by
time-consuming and extremely 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, or the enforceability, validity, or scope of protection offered by
our patents. Such decisions could make us liable for substantial money damages,
or could bar us from the manufacture, use, or sale of certain products,
resulting in additional costs and delays in bringing drugs to market. We may not
have sufficient resources to bring any such proceedings to a successful
conclusion. It may be that entry into a licensing arrangement would allow us to
avoid any such proceedings. We may not be able, however, to enter into any such
licensing arrangement on terms acceptable to us, or at all.
We also may be required to participate in interference proceedings declared
by the U.S. Patent and Trademark Office and in International Trade Commission
proceedings aimed at preventing the importing of drugs that would compete
unfairly with our drugs. Such proceedings could cause us to incur considerable
costs.
Our business exposes us to potential product liability which may have a
negative effect on our financial performance.
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. 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 purchase sufficient insurance at an affordable price. Even if
a product liability claim is not successful, the adverse publicity and time and
expense of defending such a claim may interfere with our business.
If we cease doing business and liquidate our assets, we are required to
distribute proceeds to holders of our preferred stock before we distribute
proceeds to holders of our common stock.
In the event of a dissolution or liquidation of Genta, holders of Genta
common stock will not receive any proceeds until holders of 261,200 outstanding
shares of Genta Series A preferred stock are paid a $13.1 million dollar
liquidation preference.
There currently exist certain interlocking relationships and potential
conflicts of interest.
Certain of our affiliates, Aries Domestic Fund, LP, Aries Domestic Fund II,
LP, and Aries Trust (together the "Aries Funds"), have the contractual right,
which expires January 1, 2002, to appoint a majority of the members of the Board
of Directors of the Company. Paramount Capital Asset Management, Inc. ("PCAM")
is the investment manager of the Aries Funds. The Aries Funds have the right to
convert and exercise their securities into a significant portion of the
outstanding Common Stock. Dr. Lindsay A. Rosenwald, the Chairman and sole
stockholder of PCAM, is also the Chairman of Paramount Capital, Inc. and of
Paramount Capital Investments LLC ("PCI"), a New York-based merchant banking and
venture capital firm specializing in biotechnology companies. PCAM, PCI and its
affiliates collectively control approximately 40% of the Company's Common Stock
when calculated on a fully diluted basis. In the regular course of its business,
PCI identifies, evaluates and pursues investment opportunities in biomedical and
pharmaceutical products, technologies and companies. Generally, the law requires
that any transactions between Genta and any of its affiliates be on terms that,
when taken as a whole, are substantially as favorable to us as those then
reasonably obtainable
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from a person who is not an affiliate in an arms-length transaction.
Nevertheless, our affiliates including PCAM and PCI are not obligated pursuant
to any agreement or understanding with the Company to make any additional
products or technologies available to the Company, nor can there be any
assurance, and we do not expect and you should not expect, that any biomedical
or pharmaceutical product or technology developed by any affiliate in the future
will be made available to us. In addition, some of our officers and directors of
the Company or certain of any officers or directors of the Company hereafter
appointed may from time to time serve as officers or directors of other
biopharmaceutical or biotechnology companies. We cannot assure you that these
other companies will not have interests in conflict with ours.
Concentration of ownership of our stock could lead to a delay or prevent a
change of control.
Our directors, executive officers and principal stockholders and their
affiliates own a significant percentage of our outstanding common stock and
preferred stock. They also have, through the exercise of options and warrants,
the right to acquire even more common stock and preferred stock. As a result,
these stockholders, if acting together, have the ability to influence the
outcome of corporate actions requiring stockholder approval. This concentration
of ownership may have the effect of delaying or preventing a change in control
of Genta.
Anti-takeover provisions in our certificate of incorporation and Delaware law
may prevent our stockholders from receiving a premium for their shares.
Our certificate of incorporation and by-laws include provisions that could
discourage takeover attempts and impede stockholders ability to change
management. The approval of 66-2/3% of our voting stock is required to approve
certain transactions and to take certain stockholder actions, including the
amendment of the by-laws and the amendment, if any, of the anti-takeover
provisions contained in our certificate of incorporation.
We anticipate that we will incur additional losses.
The Company has not been profitable to date, incurring substantial
operating losses associated with ongoing research and development activities,
preclinical testing, clinical trials and manufacturing activities. From the
period since its inception to June 30, 2001, the Company has incurred a
cumulative net loss of $170.3 million. We expect to continue to incur losses
until such time as product and other revenue exceed expenses of operating our
business. While we seek to attain profitability, we cannot be sure that we will
ever achieve product and other revenue sufficient for us to attain this
objective.
Claims of Genta's Default Under Various Agreements.
During 1995, Genta Europe, a wholly-owned subsidiary of the Company,
received funding in the form of a loan from ANVAR, a French government agency,
in the amount of FF5.4 million (or $.7 million at June 30, 2001) with a
scheduled maturity of December 31, 2002. The utilization of the proceeds was
intended to fund research and development activities pursuant to the ANVAR
Agreement. In October 1996, in connection with a restructuring of the Company's
operations, Genta terminated all scientific personnel of Genta Europe. ANVAR
asserted in February 1998, that Genta Europe was not in compliance with the
ANVAR Agreement, and that ANVAR might request immediate repayment of the loan.
In July 1998, ANVAR notified Genta Europe of its demand for accelerated
repayment of the loan in the amount of FF4.2 million (or $.54 million at June
30, 2001) and subsequently notified the Company that it was liable as a
guarantor on the note. The Company does not believe that ANVAR is entitled to
accelerated repayment under the terms of the ANVAR Agreement and it is currently
negotiating with ANVAR to achieve a mutually satisfactory resolution, although
there can be no assurance thereof.
On June 30, 1998, Marseille Amenagement, a company affiliated with the city
of Marseilles, France, filed suit in France to evict Genta Europe from its
facilities in Marseilles and to demand payment of alleged back rent due and of a
lease guarantee for nine years' rent. Following the filing of this claim and in
consideration of the request for repayment of the loan from ANVAR, Genta
Europe's Board of Directors directed the management to declare a "Cessation of
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Payment." Under this procedure, Genta Europe ceased any operations and
terminated its only employee. A liquidator was appointed by the Court to take
control of any assets of Genta Europe and to make payment to creditors. In
December 1998, the Court in Marseilles dismissed the case against Genta Europe
and indicated that it had no jurisdiction against Genta Incorporated. In August
1999, Marseille Amenagement instituted legal proceedings against the Company in
the Commercial Court of Marseilles, alleging back rent and early termination
receivables aggregating FF2.5 million or $.3 million at June 30, 2001. A court
hearing took place on June 11, 2001 but no ruling is expected prior to September
2001. As of June 30, 2001, the Company has accrued a net liability of
approximately $.58 million related to the liquidated subsidiary. Management
believes that this contingency is adequately reserved, although there can be no
assurance thereof.
Dividends.
The Company has never paid cash dividends on its common stock and does not
anticipate paying any such dividends in the foreseeable future. As a result of
the mandatory conversion of Series D Convertible Preferred Stock in June 2000,
no dividends were required to be paid beyond January 29, 2000. The Company
currently intends to retain its earnings, if any, for the development of its
business.
The Company is dependent on key executives and scientists.
The Company's success is highly dependent on the hiring and retention of
key personnel and scientific staff. The loss of key personnel or the failure to
recruit necessary additional personnel or both is likely further to impede the
achievement of development objectives. There is intense competition for
qualified personnel in the areas of the Company's activities, and there can be
no assurance that Genta will be able to attract and retain the qualified
personnel necessary for the development of its business.
Volatility of Stock Price; Market Overhang from Outstanding Convertible
Securities and Warrants.
The market price of the Company's common stock, like that of the common
stock of many other biopharmaceutical companies, has been highly volatile and
may be so in the future. Factors such as, among other things, the results of
pre-clinical studies and clinical trials by the Company or its competitors,
other evidence of the safety or efficacy of products of the Company or its
competitors, announcements of technological innovations or new therapeutic
products by the Company or its competitors, governmental regulation,
developments in patent or other proprietary rights of the Company or its
respective competitors, including litigation, fluctuations in the Company's
operating results, and market conditions for biopharmaceutical stocks in general
could have a significant impact on the future price of the common stock. As of
August 7, 2001, the Company had 54,523,330 shares of common stock outstanding.
Future sales of shares of common stock by existing stockholders, holders of
preferred stock who might convert such preferred stock into common stock, and
option and warrant holders also could adversely affect the market price of the
common stock.
No predictions can be made of the effect that future market sales of the
shares of common stock underlying the convertible securities and warrants
referred to under the caption "MD&A -- Certain Trends and Uncertainties -- If we
cease doing business and liquidate our assets, we are required to distribute
proceeds to holders of our preferred stock before we distribute proceeds to
holders of our common stock," or the availability of such securities for sale,
will have on the market price of the Common Stock prevailing from time to time.
Sales of substantial amounts of Common Stock, or the perception that such
sales might occur, could adversely affect prevailing market prices.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In October 1996, JBL retained a chemical consulting firm to advise it with
respect to an incident of soil and groundwater contamination (the "Spill").
Sampling conducted at the JBL facility revealed the presence of chloroform and
perchloroethylenes ("PCEs") in the soil and groundwater at this site. A
semi-annual groundwater-monitoring program is being conducted, under the
supervision of the California Regional Water Quality Control Board ("the Board")
for the purpose of determining whether the levels of chloroform and PCEs have
decreased over time. The results of the latest sampling conducted by JBL shows
that PCEs and chloroform have decreased in all but one of the monitoring sites.
Accordingly, in April 2001, the Company requested closure of this matter from
the Board as the current sampling results show that PCEs and chloroform have
decreased in all of the monitoring sites and is currently awaiting its decision.
The Company has agreed to indemnify Promega with respect to this matter and, in
the opinion of management, has adequately accrued to cover remedial expenses as
of June 30, 2001. Management also believes that any residual expense stemming
from further investigation or remediation of this matter will not have a
material adverse effect on the business of the Company, although there can be no
assurance thereof.
JBL received notice on October 16, 1998 from Region IX of the Environmental
Protection Agency (the "EPA") that it had been identified as a potentially
responsible party ("PRP") at the Casmalia Disposal Site located in Santa
Barbara, California. The EPA has designated JBL as a de minimis PRP and the
Company expects to receive a revised settlement proposal from the EPA later this
year. While the terms of the EPA settlement have not been finalized, management
believes that such terms shall provide for standard contribution protection and
release provisions. The Company has agreed to indemnify Promega with respect to
this matter and management believes that any residual expense stemming from
further investigation or remediation of this matter will not have a material
adverse effect on the business of the Company, although there can be no
assurance thereof.
During 1995, Genta Europe, a wholly-owned subsidiary of the Company,
received funding in the form of a loan from ANVAR, a French government agency,
in the amount of FF5.4 million (or $.7 million at June 30, 2001). The
utilization of the proceeds was intended to fund research and development
activities pursuant to the ANVAR Agreement. In October 1996, in connection with
a restructuring of the Company's operations, Genta terminated all scientific
personnel of Genta Europe. ANVAR asserted, in February 1998, that Genta Europe
was not in compliance with the ANVAR Agreement, and that ANVAR might request
immediate repayment of the loan. In July 1998, ANVAR notified Genta Europe of
its demand for immediate repayment of the loan in the amount of FF4.2 million
(or $.54 million at June 30, 2001) and subsequently notified the Company that it
was liable as a guarantor on the note. The Company does not believe that ANVAR
is entitled to request early repayment under the terms of the ANVAR Agreement
and it is currently negotiating with ANVAR to achieve a mutually satisfactory
resolution, although there can be no assurance thereof.
On June 30, 1998, Marseille Amenagement, a company affiliated with the city
of Marseilles, France, filed suit in France to evict Genta Europe from its
facilities in Marseilles and to demand payment of alleged back rent due and of a
lease guarantee for nine years' rent. Following the filing of this claim and in
consideration of the request for repayment of the loan from ANVAR, Genta
Europe's Board of Directors directed the management to declare a "Cessation of
Payment." Under this procedure, Genta Europe ceased any operations and
terminated its only employee. A liquidator was appointed by the Court to take
control of any assets of Genta Europe and to make payment to creditors. In
December 1998, the Court in Marseilles dismissed the case against Genta Europe
and indicated that it had no jurisdiction against Genta Incorporated. In August
1999, Marseille Amenagement instituted legal proceedings against the Company in
the Commercial Court of Marseilles, alleging back rent and early termination
receivables aggregating FF2.5 million or $.3 million at June 30, 2001. A court
hearing took place on June 11, 2001 but no ruling is expected prior to September
2001. As of June 30, 2001, the Company has accrued a net liability of
approximately $.58 million related to the liquidated subsidiary. Management
believes that this contingency is adequately reserved, although there can be no
assurance thereof.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held its Annual Meeting of Stockholders (the "Annual
Meeting") on June 14, 2001.
(b) Proxies for the meeting were solicited pursuant to Regulation 14A of
the Exchange Act. There was no solicitation in opposition to the Board
of Directors' nominees for directors listed in the definitive proxy
statement of the Company dated as of May 14, 2001. All of the Board of
Directors' nominees were elected.
(c) Briefly described below is each matter voted upon at the Annual
Meeting.
(i) Election of seven directors. Total combined voting power of the
shares of Common Stock voted and withheld for the election of
each director was as follows:
Directors Votes For Withheld
--------- ---------- --------
Raymond P. Warrell, Jr., M.D. 40,749,833 704,167
Mark C. Rogers, M.D. 41,234,817 219,183
Donald G. Drapkin 41,232,717 221,283
Ralph Snyderman, M.D. 41,235,417 218,583
Daniel D. Von Hoff, M.D. 41,236,217 217,783
Harlan J. Wakoff 41,235,117 218,883
Michael S. Weiss 41,218,793 235,207
(ii) Approval of an amendment to the Company's 1998 Stock Incentive
Plan to increase the number of shares authorized for issuance
thereunder, the result of the voting was as follows:
For: 38,779,695 votes
Against: 2,595,962 votes
Abstain: 78,343 votes
(iii) Approval of an amendment to the Company's Non-Employee
Directors' 1998 Stock Option Plan to decrease the number of
shares authorized for issuance thereunder, the result of the
voting was as follows:
For: 39,190,890 votes
Against: 2,196,942 votes
Abstain: 66,168 votes
(iv) Approval of an amendment to the Company's Non-Employee Directors'
1998 Stock Option Plan to change the amount and the time when
stock options are granted thereunder, the result of the voting
was as follows:
For: 39,751,586 votes
Against: 1,622,523 votes
Abstain: 79,891 votes
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(v) Ratification of the selection of Deloitte & Touche LLP as the
Company's independent auditors, the result of voting was as
follows:
For: 41,359,191 votes
Against: 37,793 votes
Abstain: 57,016 votes
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENTA INCORPORATED
(Registrant)
By: /s/ Raymond P. Warrell, Jr., M.D.
---------------------------------------------
Name: Raymond P. Warrell, Jr., M.D.
Title: Chairman, President, Chief Executive
Officer and Principal Executive Officer
By: /s/ Alfred J. Fernandez
---------------------------------------------
Name: Alfred J. Fernandez
Title: Executive Vice President, Chief Financial
Officer and Principal Accounting Officer
Date: August 14, 2001
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