1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
-------
For the Quarter Ended: March 31, 1997 Commission File Number 0-27352
Hybridon, Inc.
(Exact name of registrant as specified in its charter)
Delaware 04-3072298
(State or other jurisdiction of (I.R.S. Employer Identification Number)
organization or incorporation)
620 Memorial Drive
Cambridge, MA 02139
(Address of principal executive offices, including zip code)
(508) 752-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $.001 per share 25,246,352
- --------------------------------------- --------------------------------
Class Outstanding as of April 30, 1997
2
HYBRIDON, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS AS OF MARCH 31, 1997 AND
DECEMBER 31, 1996 AND PROFORMA BALANCE SHEET AS OF MARCH 31, 1997
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1996 AND CUMULATIVE FROM MAY 25, 1989
(INCEPTION) TO MARCH 31, 1997
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1996, AND CUMULATIVE FROM MAY 25, 1989
(INCEPTION) TO MARCH 31, 1997
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
ITEM 2 - CHANGES IN SECURITIES
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
3
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
ASSETS
DECEMBER 31, MARCH 31, PRO FORMA
1996 1997 MARCH 31, 1997
(SEE NOTE 1)
CURRENT ASSETS:
Cash and cash equivalents $ 12,633,742 $ 2,489,882 $ 49,489,882
Short-term investments 3,785,146 -- --
Accounts receivable 573,896 737,880 737,880
Prepaid expenses and other current assets 1,545,324 1,735,601 1,735,601
------------- ------------- -------------
Total current assets 18,538,108 4,963,363 51,963,363
------------- ------------- -------------
PROPERTY AND EQUIPMENT, AT COST:
Leasehold improvements 9,257,516 9,235,836 9,235,836
Laboratory equipment 5,884,861 6,096,150 6,096,150
Equipment under capital leases 2,904,688 4,042,140 4,042,140
Office equipment 1,496,639 1,525,998 1,525,998
Furniture and fixtures 499,958 548,076 548,076
Construction-in-progress 2,193,400 5,739,721 5,739,721
------------- ------------- -------------
22,237,062 27,187,921 27,187,921
Less -- Accumulated depreciation and amortization 6,596,294 7,823,430 7,823,430
------------- ------------- -------------
15,640,768 19,364,491 19,364,491
------------- ------------- -------------
OTHER ASSETS:
Restricted cash 437,714 395,000 395,000
Notes receivable from officers 317,978 320,282 320,282
Deferred financing costs and other assets 1,152,034 474,028 3,474,028
Investment in real estate partnership 5,450,000 5,450,000 5,450,000
------------- ------------- -------------
7,357,726 6,639,310 9,639,310
------------- ------------- -------------
$ 41,536,602 $ 30,967,164 $ 80,967,164
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease $ 1,308,511 1,583,230 1,583,230
obligations
Accounts payable 4,064,419 6,270,436 6,270,436
Accrued expenses 4,190,766 4,361,677 4,361,677
Deferred revenue 86,250 86,250 86,250
------------- ------------- -------------
Total current liabilities 9,649,946 12,301,593 12,301,593
------------- ------------- -------------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, NET OF CURRENT
PORTION 9,031,852 9,500,463 59,500,463
------------- ------------- -------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value - -- --
Authorized -- 5,000,000 shares at March 31, 1997
Issued and outstanding -- None -- --
Common stock, $.001 par value -
Authorized -- 100,000,000 shares
Issued and outstanding -- 25,146,577 shares at December 31,
1996, and 25,232,352 shares at March 31, 1997
respectively 25,147 25,233 25,233
Additional paid-in capital 173,227,358 173,612,808 173,612,808
Deficit accumulated during the development stage (149,193,775) (163,211,408) (163,211,408)
Deferred Compensation (1,203,926) (1,261,525) (1,261,525)
------------- ------------- -------------
Total stockholders' equity 22,854,804 9,165,108 9,165,108
------------- ------------- -------------
$ 41,536,602 $ 30,967,164 $ 80,967,164
============= ============= =============
The accompanying notes are an integral part of these
consolidated condensed financial statements.
4
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
CUMULATIVE FROM
MAY 25, 1989
THREE MONTHS ENDED (INCEPTION)
MARCH 31 TO
1997 1996 MARCH 31, 1997
REVENUES:
Research and development $ 593,900 $ 259,350 $ 5,148,163
Product Revenue 348,154 -- 1,428,329
Interest income 117,412 294,873 2,259,029
Royalty and other income -- -- 62,321
------------ ------------- -------------
1,059,466 554,223 8,897,842
------------ ------------- -------------
OPERATING EXPENSES:
Research and development 11,476,439 7,383,297 130,108,337
General and administrative 3,430,453 2,418,386 40,220,321
Interest 170,207 39,604 1,780,590
------------ ------------- -------------
15,077,099 9,841,287 172,109,248
------------ ------------- -------------
Net loss $(14,017,633) $ (9,287,064) $(163,211,406)
------------ ------------- =============
NET LOSS PER COMMON SHARE
(Note 2) $ (.56) $ (.41)
============ =============
SHARES USED IN COMPUTING NET LOSS
PER COMMON SHARE (Note 2) 25,224,728 22,708,394
============ =============
The accompanying notes are an integral part of these
consolidated condensed financial statements.
5
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
CUMULATIVE FROM
MAY 25, 1989
THREE MONTHS ENDED (INCEPTION) TO
MARCH 31 MARCH 31,
1997 1996 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(14,017,633) $ (9,287,064) $(163,211,406)
Adjustments to reconcile net loss to net cash used in
operating activities -
Depreciation and amortization 1,227,136 499,930 7,924,871
Issuance of common stock for services rendered 146,875 -- 146,875
Compensation on grant of stock options, warrants and
restricted stock 133,859 -- 7,941,590
Amortization of discount on convertible promissory
notes payable -- -- 690,157
Amortization of deferred financing costs 274,800 -- 491,532
Noncash interest on convertible promissory notes payable
-- -- 260,799
Changes in operating assets and liabilities -
Accounts Receivable (163,984) -- (737,880)
Prepaid and other current assets (190,277) (1,079,723) (1,735,600)
Notes receivable from officers (2,304) (2,516) (320,282)
Amounts payable to related parties -- 73,000 (200,000)
Accounts payable and accrued expenses 2,376,928 (675,583) 10,632,113
Deferred revenue -- -- 86,250
------------ ------------ -------------
Net cash used in operating activities (10,214,600) (10,471,956) (138,030,981)
------------ ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in short-term investments 3,785,146 (9,914,429) --
Purchases of property and equipment, net (3,831,655) (1,867,151) (25,634,365)
Decrease (increase) in restricted cash and other assets 445,919 (3,827) (1,218,264)
Investment in real estate partnership -- (2,911,456) (5,450,000)
------------ ------------ -------------
Net cash used in investing activities 399,410 (14,696,863) (32,302,629)
------------ ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible preferred stock -- -- 96,584,154
Proceeds from issuance of common stock related to stock
options and restricted stock grants 47,203 43,750 1,221,805
Proceeds from issuance of common stock related to stock
warrants -- -- 3,176,741
Net proceeds from issuance of common stock -- 52,231,244 52,355,324
Repurchase of common stock -- -- (263)
Proceeds from notes payable -- -- 9,450,000
Proceeds from issuance of convertible
promissory notes payable -- -- 9,191,744
Proceeds from long-term debt -- -- 662,107
Payments on long-term debt and capital leases (375,874) (108,148) (2,177,487)
Proceeds from sale/leaseback -- -- 2,795,516
Decrease (increase) in deferred financing costs -- 526,721 (436,149)
------------ ------------ -------------
Net cash provided by financing activities (328,671) 52,693,567 172,823,492
------------ ------------ -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (10,143,861) 27,524,748 2,489,882
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 12,633,742 5,284,262 --
------------ ------------ -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,489,882 $ 32,809,010 $ 2,489,882
============ ============ =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 170,207 $ 39,604 $ 1,780,590
============ ============ =============
The accompanying notes are an integral part of these
consolidated condensed financial statements.
6
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) ORGANIZATION
Hybridon, Inc. (the Company) was incorporated in the State of Delaware on
May 25, 1989. The Company is engaged in the discovery and development of
novel genetic medicines based primarily on antisense technology.
The Company is in the development stage. Since inception, the Company has
devoted substantially all of its efforts toward product research and
development and raising capital. Management anticipates that
substantially all future revenues will be derived from the sale of
proprietary biopharmaceutical products under development or to be
developed in the future, and contract manufacturing of synthetic DNA/RNA
products and reagent products (manufactured by the Hybridon Specialty
Products Division), as well as from research and development revenues and
fees and royalties derived from licensing of the Company's technology.
Accordingly, although the Company has begun to generate revenues from its
contract manufacturing business, the Company is dependent on the proceeds
from possible future sales of equity securities, debt financings and
research and development collaborations in order to fund future
operations.
On April 2, 1997, the Company issued $50,000,000 of 9% convertible
subordinated notes (the Notes). Under the terms of the Notes, the Company
must make semi-annual interest payments on the outstanding principle
balance through the maturity date of April 1, 2004. If the Notes are
converted prior to April 1, 2000, the Noteholders are entitled to receive
accrued interest from the date of the most recent interest payment
through the conversion date. The Notes are subordinate to substantially
all of the Company's existing indebtedness. The Notes are convertible at
any time prior to the maturity date at a conversion price equal to
$7.0125, subject to adjustment under certain circumstances, as defined.
Beginning April 1, 2000, the Company may redeem the Notes at its option
for a 4.5% premium over the original issuance price, provided that from
April 1, 2000 to March 31, 2001, the Notes may not be redeemed unless the
closing price of the common stock equals or exceeds 150% of the
conversion price for a period of at least 20 out of 30 consecutive
trading days and the Notes are redeemed within 60 days after such trading
period. The premium decreases by 1.5% each year through March 31, 2003.
Upon a change of control of the Company, as defined, the Company will be
required to offer to repurchase the Notes at 150% of the original
issuance price.
The unaudited pro forma consolidated balance sheet as of March 31, 1997
shows the financial position of the Company assuming the Notes were
issued on March 31, 1997.
7
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
(1) ORGANIZATION (Continued)
The unaudited consolidated condensed financial statements included herein
have been prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission and include, in
the opinion of management, all adjustments, consisting of normal,
recurring adjustments, necessary for a fair presentation of interim
period results. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations. The Company believes, however, that its
disclosures are adequate to make the information presented not
misleading. The results for the interim periods presented are not
necessarily indicative of results to be expected for the full fiscal
year. It is suggested that these financial statements be read in
conjunction with the audited consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, as filed with the Securities and Exchange
Commission.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Net Loss per Common Share
Net loss per common share is computed using the weighted average number
of shares of common stock outstanding during the period. Pursuant to the
requirements of the Securities and Exchange Commission, common stock
issued by the Company during the 12 months immediately preceding its
initial public offering, plus shares of common stock that became issuable
during the same period pursuant to the grant of common stock options and
preferred and common stock warrants, has been included in the calculation
of weighted average number of shares outstanding for the period from
January 1, 1996 through February 2, 1996 (using the treasury-stock method
and the initial public offering price of $10 per share). In addition, the
calculation of the weighted average number of shares outstanding includes
shares of common stock as if all shares of preferred stock were converted
into common stock on the respective original dates of issuance.
8
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
(3) CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company applies SFAS No. 115, Accounting for Certain Investments in
Debt and Equity Securities. Accordingly, the Company has classified its
cash equivalents and short-term investments as held-to-maturity, and has
recorded them at amortized cost, which approximates market value.
Short-term investments mature within one year of the balance sheet date.
Cash equivalents have original maturities of less than three months. Cash
and cash equivalents and short-term investments at March 31, 1997 and
December 31, 1996 consisted of the following:
March 31, December 31,
1997 1996
Cash and Cash Equivalents -
Cash and money market funds $ 1,492,184 $10,144,367
U.S. government securities 997,698 2,489,375
----------- -----------
$ 2,489,882 $12,633,742
=========== ===========
Short-term Investments -
U.S. government securities $ -- $ 3,785,146
=========== ===========
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Company is engaged in the discovery and development of genetic medicines
based primarily on antisense technology. The Company commenced operations in
February 1990 and since that time has been engaged primarily in research and
development efforts, development of its manufacturing capabilities and
organizational efforts, including recruitment of scientific and management
personnel and raising capital. To date, the Company has not received revenue
from the sale of biopharmaceutical products developed by it based on antisense
technology. In order to commercialize its own products, the Company will need to
address a number of technological challenges and comply with comprehensive
regulatory requirements. Accordingly, it is not possible to predict the amount
of funds that will be required or the length of time that will pass before the
Company receives revenues from sales of any of these products. All revenues
received by the Company to date have been derived from collaborative agreements,
interest on invested funds and revenues from the custom contract manufacturing
of synthetic DNA and reagent products by the Company's Hybridon Specialty
Products Division.
The Company has incurred losses since its inception and expects to incur
significant operating losses in the future. The Company expects that its
research and development expenses will increase significantly during the balance
of 1997 and in future years as it moves its principal research and development
programs to more advanced preclinical studies, clinical trials and later phase
clinical trials. In addition, the Company expects that its facilities costs will
increase in 1997 and future years over 1996 levels as a result of the relocation
of the Company's executive offices and its primary research and development
laboratories to Cambridge, Massachusetts on February 1, 1997. The Company also
expects that its personnel and patent costs will increase significantly in the
future. Costs associated with the Company's patent applications are expected to
increase as the Company continues to file and prosecute such applications.
Patent costs also would increase significantly if the Company became involved in
litigation or administrative proceedings involving its patents or those of third
parties. The Company has incurred cumulative losses from inception through March
31, 1997 of 163.2 million.
This Quarterly Report on Form 10-Q contains forward-looking statements. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "intends," "may," and
other similar expressions are intended to identify forward-looking statements.
There are a number of important factors that could cause the Company's actual
results to differ materially from those indicated by such forward-looking
statements. These factors include the matters set forth under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Certain Factors that May Affect Future Results" in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996, which is hereby
incorporated herein by this reference.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 and 1996
The Company had total revenues of $1,059,000 and $554,000 in the three months
ended March 31, 1997 and 1996, respectively. Revenues from research and
development collaborations were $594,000 and $259,000 for the three months ended
March 31, 1997 and 1996, respectively. Revenues for the three month period ended
March 31, 1997 and 1996 included payments earned under a collaborative agreement
with F. Hoffmann-La Roche Ltd (Roche). For the three month period ended March
31, 1997, revenues also included payments under a collaborative agreement with
G. D. Searle & Co. (Searle). Revenues from the custom contract manufacturing of
synthetic DNA and reagent products by the Hybridon Specialty Products Division
were $348,000 for the three month period ended March 31, 1997. Revenues from
interest income were $117,000 and $295,000 for the three months ended March 31,
1997 and 1996, respectively. The decrease in interest income in the three month
period ended March 31, 1997 was the result of substantially lower cash balances
10
available for investment during the three month period ended March 31, 1997 as
compared to the three month period ended March 31, 1996 during which the Company
completed its initial public offering on February 2, 1996.
The Company had research and development expenses of $11,476,000 and 7,383,000
in the three months ended March 31, 1997 and 1996, respectively. The increase in
research and development expenses for the three months ended March 31, 1997
reflects increased expenses related primarily to ongoing clinical trials of the
Company's product candidates, including trials of two different formulations of
GEM(R) 132 (an antisense compound for the treatment of systemic CMV and CMV
Retinitis) which were initiated in the United States and Europe during the
three months ended March 31, 1997. The increase also reflects increased expenses
associated with salaries and related costs, facilities equipment costs related
to additional laboratories, consulting and professional expense, expenses
related to the production of GEM(R) 91 (an antisense oligonucleotide targeted
at AIDS), and GEM(R) 132 and expenses for preclinical compounds. Research and
development staffing and related costs increased significantly as the number of
employees engaged in research and development activities increased by
approximately 32% for the three month period ending March 31, 1997. The
Company expects to invest significant resources during the remainder of 1997
and in future years in connection with the ongoing clinical trials of GEM(R)91
and GEM(R)132, the performance of preclinical studies, and the preparation of
IND applications and the initiation of clinical trials.
The Company had general and administrative expenses of $3,430,000 and $2,418,000
in the three months ended March 31, 1997 and 1996, respectively. The increase in
general and administrative expenses for the three months ended March 31, 1997
was attributable primarily to an increase in expenses associated with the
termination of certain financing activities, a one time expense associated with
the Company's investment in MethylGene, consulting services and salaries and
related costs.
The Company had interest expense of $170,207 and $40,000 in the three months
ended March 31, 1997 and 1996, respectively. Interest expense for the three
months ended March 31, 1997 and 1996 primarily consisted of interest incurred on
borrowings to finance the purchase of property and equipment, and leasehold
improvements. The increase in interest expense for the three months ended March
31, 1997 reflected an increase in the debt outstanding during the three months
ended March 31, 1997. The Company's future interest expense will increase
significantly in the future as a result of the issuance of $50,000,000 of 9%
Convertible Subordinated Notes (the Notes) which was completed on April 2, 1997.
As a result of the above factors, the Company incurred net losses of $14,017,000
and $9,287,000 for the three months ended March 31, 1997 and 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31,1997, the Company's net cash used in
operating activity was $10,214,600, principally for use in the Company's ongoing
research and development programs. The Company also increased its investment in
property and equipment by $3,831,655, consisting primarily of costs associated
with finishing the buildout of the Company's Milford manufacturing facility and
costs associated with leasehold improvements and furnishings of the Cambridge
facility which the Company moved into on February 1, 1997.
On April 2, 1997, the Company sold $50.0 million of Notes to certain investors.
The Notes bear interest at a rate of 9% per annum and have a maturity date of
April 1, 2004. Under the Notes, the Company is required to make semi-annual
interest payments on the outstanding principal balance through the maturity date
of April 1, 2004. The Notes are convertible at the option of the holder into the
Company's Common Stock at any time prior to maturity, unless previously redeemed
or repurchased by the Company under certain specified circumstances, at a
conversion price of $7.0125 per share (subject to adjustment). In connection
with the sale of the Notes, the Company also granted a 60-day option (which
expires on May 25, 1997) to purchase up to an additional $10,000,000 principal
amount of the Notes.
11
The Company had cash and cash equivalents of $2,490,000 at March 31, 1997.
Based on its current operating plan, the Company believes that its existing
capital resources, together with the committed collaborative research and
development payments from Searle, anticipated sales of the Hybridon Specialty
Products Division and margins on such sales, which are expected to increase
significantly over historic levels, and the net proceeds from the sale of the
Notes and the interest earned thereon, will be adequate to fund the Company's
capital requirements through at least the first quarter of 1998.
The Company's future capital requirements will depend on many factors, including
continued scientific progress in its research, drug discovery and development
programs, the magnitude of these programs, progress with preclinical and
clinical trials, sales of DNA products and reagents manufactured on a custom
contract basis by the Hybridon Specialty Products Division and the margins on
such sales, the time and costs involved in obtaining regulatory approvals, the
costs involved in filing, prosecuting and enforcing patent claims, competing
technological and market developments, the ability of the Company to establish
and maintain collaborative academic and commercial research, development and
marketing relationships, the ability of the Company to obtain third party
financing for leasehold improvements and other capital expenditures and the cost
of manufacturing scale-up and commercialization activities and arrangements.
The Company intends to seek additional equity, debt and lease financing to fund
future operations. The Company also intends to seek additional collaborative
development and commercialization relationships with potential corporate
partners in order to fund certain of its programs. Except for research and
development funding from Searle under Hybridon's collaborative agreement with
Searle (which is subject to early termination in certain circumstances),
Hybridon has no committed external sources of capital, and, as discussed above,
expects no product revenues for several years from sales of the products that it
is developing (as opposed to sales of DNA products and reagents manufactured on
a custom contract basis by the Hybridon Specialty Products Division). If the
Company is unable to obtain necessary additional funds, it would be required to
scale back or eliminate certain of its research and development programs or
license to third parties certain technologies which the Company would otherwise
pursue on its own.
12
HYBRIDON, INC.
PART II
OTHER INFORMATION
-------
Item 1 None
Item 2 Changes in Securities
During the quarter ended March 31, 1997, the Company issued and sold
the following securities that were not registered under the Securities Act of
1933, as amended (the "Securities Act"):
1. On January 20, 1997, the Company issued 25,000 shares of its Common
Stock to an investment bank as compensation under a financial advisory services
agreement entered into with such investment bank on such date.
2. On January 25, 1997, the Company issued, for an aggregate purchase
price of $9,075, 1650 shares of its Common Stock to one investor upon exercise
by such investor of warrants to purchase Common Stock.
The shares of Common Stock issued in the above transaction were offered
and sold in reliance upon the exemption from registration under Section 4(2) of
the Securities Act, relating to sales by an issuer not involving any public
offering.
Item 3-5 None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Computation of Net Loss Per Common Share.
27 Financial Data Schedule (EDGAR)
99 Pages 39-48 of the Company's Annual Report on Form
10-K for the period ended December 31, 1996 (which is
not deemed to be filed except to the extent that
portions thereof are expressly incorporated by
reference herein).
(b) No reports were filed on Form 8-K during the three months
ended March 31, 1997.
13
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.
HYBRIDON, INC.
May 15, 1997 /s/ E. Andrews Grinstead III
- ---------------- -----------------------------------------------
Date E. Andrews Grinstead, III
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
May 15, 1997 /s/ Anthony J. Payne
- ---------------- -----------------------------------------------
Date Anthony J. Payne
Senior Vice President of Finance and Administration
and Chief Financial Officer (Principal Financial
and Accounting Officer)
14
HYBRIDON, INC.
EXHIBIT INDEX
-------
11 Computation of Net Loss Per Common Share.
27 Financial Data Schedule (EDGAR)
99 Pages 39-48 of the Company's Annual Report on Form 10-K for the period
ended December 31, 1996 (which is not deemed to be filed except to the
extent that portions thereof are expressly incorporated by reference
herein).
1
EXHIBIT 11
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
COMPUTATION OF NET LOSS PER COMMON SHARE (1)
THREE MONTHS ENDED
MARCH 31,
1997 1996
NET LOSS $(14,017,633) $ (9,287,064)
============ ============
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES:
Weighted average common stock outstanding during the
period 25,224,728 16,976,729
Conversion of preferred stock -- 5,557,137
Dilutive effect of common equivalent shares issued
subsequent to October 31, 1994 (2) -- 174,528
------------ ------------
25,224,728 22,708,394
============ ============
NET LOSS PER COMMON SHARE $ (.56) $ (.41)
============ ============
(1) Primary and fully diluted net loss per share has not been separately
presented, as the amounts would not be meaningful.
(2) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, stock options issued at prices below the initial public offering
price per share (cheap stock) during the 12-month period immediately
preceding the initial filing date of the Company's Registration Statement
of its initial public offering have been included as outstanding for all
periods presented. The dilutive effect of the common and common stock
equivalents was computed in accordance with the treasury stock method.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5
3-MOS
DEC-31-1997
JAN-01-1996
MAR-31-1997
1
1,492,184
997,698
0
0
0
4,963,363
27,187,921
7,823,430
30,976,164
12,301,593
9,500,463
0
0
25,233
9,139,875
30,967,164
348,154
1,059,466
0
0
14,906,892
0
170,207
(14,017,633)
0
(14,017,633)
0
0
0
(14,017,633)
(.56)
(.56)
1
EXHIBIT 99
Certain Factors That May Affect Future Results
The following important factors, among others, could cause actual
results to differ materially from those contained in forward-looking statements
made in this Annual Report on Form 10-K and presented elsewhere by management
from time to time.
-39-
2
Early Stage of Development; Technological Uncertainty
Hybridon's potential pharmaceutical products are at various stages of
research, preclinical testing or clinical development. There are a number of
technological challenges that the Company must successfully address to complete
any of its development efforts. To date, most of the Company's resources have
been dedicated to applying oligonucleotide chemistry and cell biology to the
research and development of potential pharmaceutical products based upon
antisense technology. As in most drug discovery programs, the results of in
vitro, tissue culture and preclinical studies by the Company may be inconclusive
and may not be indicative of results that will be obtained in human clinical
trials. In addition, results attained in early human clinical trials by the
Company may not be indicative of results that will be obtained in later clinical
trials. Neither the Company, nor to its knowledge, any other company has
successfully completed human clinical trials of a product based on antisense
technology, and there can be no assurance that any of the Company's products
will be successfully developed.
The success of any of the Company's potential pharmaceutical products
depends in part on the molecular target on the genetic material chosen as the
site of action of the oligonucleotide. There can be no assurance that the
Company's choice will be appropriate for the treatment of the targeted disease
indication in humans or that mutations in the genetic material will not result
in a reduction in or loss of the efficacy or utility of the Company product.
Uncertainty Associated with Clinical Trials
Before obtaining regulatory approvals for the commercial sale of any of
its pharmaceutical products under development, the Company must undertake
extensive and costly preclinical studies and clinical trials to demonstrate that
such products are safe and efficacious. The results from preclinical studies and
early clinical trials are not necessarily predictive of results that will be
obtained in later stages of testing or development, and there can be no
assurance that the Company's clinical trials will demonstrate the safety and
efficacy of any pharmaceutical products or will result in pharmaceutical
products capable of being produced in commercial quantities at reasonable cost
or in a marketable form.
Although the Company is conducting clinical trials of certain
oligonucleotide compounds and is developing several oligonucleotide compounds on
which it plans to file IND applications with the FDA and equivalent filings
outside of the U.S., there can be no assurance that necessary preclinical
studies on these compounds will be completed satisfactorily or that the Company
otherwise will be able to make its intended filings. Further, there can be no
assurance that the Company will be permitted to undertake and complete human
clinical trials of any of the Company's potential products, either in the U.S.
or elsewhere, or, if permitted, that such products will not have undesirable
side effects or other characteristics that may prevent or limit their commercial
use.
The rate of completion of the Company's human clinical trials, if
permitted, will be dependent upon, among other factors, the rate of patient
enrollment. Patient enrollment is a function of many factors, including the size
of the patient population, the nature of the protocol, the availability of
alternative treatments, the proximity to clinical sites and the eligibility
criteria for the study. Delays in planned patient enrollment might result in
increased costs and delays, which could have a material adverse effect on the
Company. The Company or the FDA or other regulatory agencies may suspend
clinical trials at any time if the subjects or patients participating in such
trials are being exposed to unacceptable health risks.
-40-
3
Future Capital Needs; Uncertainty of Additional Funding
The Company's future capital requirements will depend on many factors,
including continued scientific progress in its research, drug discovery and
development programs, the magnitude of these programs, progress with preclinical
and clinical trials, sales of DNA products and reagents to these parties
manufactured on a custom contract basis by the Hybridgon Specialty Products
Division and the margins on such sales, the time and costs involved in obtaining
regulatory approvals, the costs involved in filing, prosecuting and enforcing
patent claims, competing technological and market developments, the ability of
the Company to establish and maintain collaborative academic and commercial
research, development and marketing relationships, the ability of the Company to
obtain third-party financing for leasehold improvements and other capital
expenditures and the costs of manufacturing scale-up and commercialization
activities and arrangements.
Based upon its current operating plan, the Company believes that its
existing capital resources, together with the committed collaborative research
and development payments from Searle, anticipated sales of the Hybridon
Specialty Products Division and margins on such sales, which are not expected to
increase significantly over historic levels, and the net proceeds from the sale
of the Notes and the interest earned theron, will be adequate to fund the
Company's capital requirements through at least the first quarter of 1998. The
Company anticipates that it will be required to raise substantial additional
funds, through external sources, including through collaborative relationships
and public or private financings, to support the Company's operations beyond
that time. No assurance can be given that additional financing will be
available, or, if available, that it will be available on acceptable terms. If
additional funds are raised by issuing equity securities, further dilution to
then existing stockholders will result. Additionally, the terms of any such
additional financing may adversely affect the holdings or rights of then
existing stockholders. If adequate funds are not available, the Company may be
required to curtail significantly one or more of its research, drug discovery or
development programs, or obtain funds through arrangements with collaborative
partners or others that may require the Company to relinquish rights to certain
of its technologies, product candidates or products which the Company would
otherwise pursue on its own. See "Item 1. Business -- Hybridon Drug Development
and Discovery Programs."
History of Operating Losses and Accumulated Deficit
Hybridon has incurred net losses since its inception. At December 31,
1996, the Company's accumulated deficit was approximately $149,194,000. Such
losses have resulted principally from costs incurred in the Company's research
and development programs and from general and administrative costs associated
with the Company's development. No revenues have been generated from sales of
pharmaceutical products developed by the Company and no revenues from the sale
of such products are anticipated for a number of years, if ever. The Company
expects to incur additional operating losses over the next several years and
expects cumulative losses to increase significantly as the Company's research
and development and clinical trial efforts expand. The Company expects that
losses will fluctuate from quarter to quarter and that such fluctuations may be
substantial. Although the Company's Hybridon Specialty Products Division has
begun to generate revenues from the sale of synthetic DNA products and reagents
manufactured by it on a custom contract basis, there can be no assurance that
demand for and margins on these products will not be lower than anticipated. The
Company's ability to achieve profitability is dependent in part on obtaining
regulatory approvals for its pharmaceutical products and entering into
agreements for drug discovery, development and commercialization. There can be
no assurance that the Company will obtain required regulatory approvals, enter
into any additional agreements for drug discovery, development and
commercialization or ever achieve sales or profitability.
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4
Patents and Proprietary Rights
The Company's success will depend in part on its ability to develop
patentable products and obtain and enforce patent protection for its products
both in the U.S. and in other countries. The Company has filed and intends to
file applications as appropriate for patents covering both its products and
processes. However, the patent positions of pharmaceutical and biotechnology
firms, including Hybridon, are generally uncertain and involve complex legal and
factual questions. No assurance can be given that patents will issue from any
pending or future patent applications owned by or licensed to Hybridon. Since
patent applications in the U.S. are maintained in secrecy until patents issue,
and since publication of discoveries in the scientific or patent literature tend
to lag behind actual discoveries by several months, the Company cannot be
certain that it was the first creator of inventions covered by pending patent
applications or that is was the first to file patent applications for such
inventions. Further, there can be no assurance that the claims allowed under
any issued patents will be sufficiently broad to protect the Company's
technology. In addition, no assurance can be given that any issued patents
owned by or licensed to the Company will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide competitive
advantages to the Company.
The commercial success of the Company will also depend in part on its
neither infringing patents issued to competitors or others nor breaching the
technology licenses upon which the Company's products might be based. The
Company's licenses of patents and patent applications impose various
commercialization, sublicensing, insurance and other obligations on the Company.
Failure of the Company to comply with these requirements could result in
termination of the license. The Company is aware of patents and patent
applications belonging to competitors, and it is uncertain whether these patents
and patent applications will require the Company to alter its products or
processes, pay licensing fees or cease certain activities. In particular,
competitors of the Company and other third parties hold issued patents and
pending patent applications relating to antisense and other gene expression
modulation technologies which may result in claims of infringement against the
Company or other patent litigation. There can be no assurance that the Company
will be able successfully to obtain a license to any technology that it may
require or that, if obtainable, such technology can be licensed at a reasonable
cost or on an exclusive basis. See "Item 1. Business -- Patents, Trade Secrets
and Licenses."
The pharmaceutical and biotechnology industries have been characterized
by extensive litigation regarding patents and other intellectual property
rights. Litigation, which could result in substantial cost to the Company, may
be necessary to enforce any patents issued or licensed to the Company and/or to
determine the scope and validity of others" proprietary rights. The Company also
may have to participate in interference proceedings declared by the U.S. Patent
and Trademark Office, which could result in substantial cost to the Company, to
determine the priority of inventions. Furthermore, the Company may have to
participate at substantial cost in International Trade Commission proceedings to
abate importation of products which would compete unfairly with products of the
Company
Hybridon engages in collaborations, sponsored research agreements and
other agreements with academic researchers and institutions and government
agencies. Under the terms of such agreements, third parties may have rights in
certain inventions developed during the course of the performance of such
collaborations and agreements.
The Company relies on trade secrets and proprietary know-how which it
seeks to protect, in part, by confidentiality agreements with its collaborators,
employees and consultants. There can be no assurance that these agreements will
not be breached, that the Company would have adequate remedies for any breach or
independently developed by competitors. See "Item 1. Business -- Patents, Trade
Secrets and Licenses."
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5
Risks Associated with Hybridon Specialty Products Division
Through its Hybridon Specialty Products Division, the Company
manufactures oligonucleotide compounds on a custom contract basis for third
parties. The results of operations of the Hybridon Specialty Products Division
will be dependent upon the Demand for and margins on these products, which may
be lower than anticipated by the Company. The results of operations of the
Hybridon Specialty Products Division also may be affected by the price and
availability of raw materials. It is possible that Hybridon's manufacturing
capacity may not be sufficient for production of oligonucleotides both for the
Company's internal needs and for sale to third parties. The Company's
manufacturing facility must comply with GMP and other FDA regulation. See "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations - - Certain Factors That May Affect Future Results - - Limited
Manufacturing Capability."
The Company will be competing against a number of third parties, as
well as the possibility of internal production by the Company's customers, in
connection with the operations of the Hybridon Specialty Products Division. Many
of these third parties are likely to have greater financial, technical and human
resources than the Company. Key competitive factors will include the price and
quality of the products as well as manufacturing capacity and ability to comply
with specifications and to fulfill orders on a timely basis. The Company may be
required to reduce the cost of its product offerings to meet competition. See
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations - - Certain Factors That May Affect Future Results - -
Competition." Failure to manufacture oligonucleotide compounds in accordance
with the purchaser's specifications could expose the Company to breach of
contract and/or product liability claims from the purchaser or the purchaser's
customers. The Company has limited experience in sales, marketing and
distribution and is relying in part upon the efforts of third party,
Perkin-Elmer, in connection with the marketing and sale of products by the
Hybridon Specialty Products Division. See "Item 7. Management's Discussion and
Analysis of Financial Conditions and Results of Operations - - Certain Factors
That May Affect Future Results - - Absence of Sales and Marketing Experience."
Need to Establish Collaborative Commercial Relationships; Dependence on Partners
Hybridon's business strategy includes entering into strategic alliances
or licensing arrangements with corporate partners, primarily pharmaceutical and
biotechnology companies, relating to the development and commercialization of
certain of its potential products. Although the Company is a party to corporate
collaborations with Searle, Roche and Medtronic, there can be no assurance that
these collaborations will be scientifically or commercially successful, that the
Company will be able to negotiate additional collaborations, that such
collaborations will be available to the Company on acceptable terms or that any
such relationships, if established, will be scientifically or commercially
successful. The Company expects that under certain of these arrangements, the
collaborative partner will have the responsibility for conducting human clinical
trials and the submission for regulatory approval of the product candidate with
the FDA and certain other regulatory agencies. Should the collaborative partner
fail to develop a maketable product, the Company's business may be materially
adversely affected. There can be no assurance that the Company's collaborative
partners will not be pursuing alternative technologies or developing alternative
compounds either on their own or in collaboration with others, including the
Company's competitors, as a means for developing treatments for the diseases
targeted by these collaborative programs. The Company's business also will be
affected by the performance of its corporate parners in marketing any
successfully developed products within the geographic areas in which such
parners are granted marketing rights. The Company's plan is to retain
manufacturing rights for many of the products it may license pursuant to
arrangements with corporate partners. However, there can be no assurance that
the Company will be able to retain such rights on acceptable terms, if at all,
or that the Company will have the ability to produce the quantities of product
required under the terms of such
-43-
6
arrangements. See "Item 1. Business --Hybridon Drug Development and Discovery
Programs" and "-- Corporate Collaborations."
No Assurance of Regulatory Approval; Government Regulation
The Company's preclinical studies and clinical trials, as well as the
manufacturing and marketing of its potential products being developed by it and
the products sold by the Hybridon Specialty Products Division, are subject to
extensive regulation by numerous federal, state and local governmental
authorities in the U.S. Similar regulatory requirements exist in other countries
where the Company intends to test and market its drug candidates. Preclinical
studies of the Company's product development candidates are subject to GLP
requirements and the manufacture of any products by the Company, including
products developed by the Company and products manufactured for third parties on
a custom contract basis by Hybridon Specialty Products Division, will be subject
to GMP requirements prescribed by the FDA.
The regulatory process, which includes preclinical studies, clinical
trials and post-clinical testing of each compound to establish its safety and
effectiveness, takes many years and requires the expenditure of substantial
resources. Delays may also be encountered and substantial costs incurred in
foreign countries. There can be no assurance that, even after the passage of
such time and the expenditure of such resources, regulatory approval will be
obtained for any drugs developed by the Company. Data obtained from preclinical
and clinical activities are subject to varying interpretation which could delay,
limit or prevent regulatory approval by the FDA or other regulatory agencies.
The Company, an IRB, the FDA or other regulatory agencies may suspend clinical
trials at any time if the participants in such trials are being exposed to
unacceptable health risks. Moreover, if regulatory approval of a drug is
granted, such approval my entail limitation on the indicated uses for which it
may be marketed. Failure to comply with applicable regulatory requirements can,
among other things, result in fines, suspension of regulatory approvals, product
recalls, seizure of products, operating restrictions and criminal prosecutions.
FDA policy may change and additional government regulations may be established
that could prevent or delay regulatory approval of the Company's potential
products. In addition, a marketed drug and its manufacturer are subject to
continual review, and subsequent discovery of previously unknown problems with
a product or manufacturer may result in restrictions on such product or
manufacturer, including withdrawal of the product from the market and
withdrawal of the right to manufacture the product. All of the foregoing
regulatory matters also will be applicable to development, manufacturing and
marketing undertaken by any strategic partners or licensees of the Company. See
"Item 1. Business -- Government Regulation."
Competition
There are many companies, both private and publicly traded, that are
conducting research and development activities on technologies and products
similar to or competitive with the Company's antisense technologies and proposed
products. For example, many other companies are actively seeking to develop
products, including antisense oligonucleotides, with disease targets similar to
those being pursued by the Company. Some of these competitive products are in
clinical trials. The Company believes that the industry-wide interest in
investigating the potential of gene expression modulation technologies will
continue and will accelerate as the techniques which permit the design and
development of drugs based on such technologies become more widely understood.
There can be no assurance that the Company's competitors will not succeed in
developing products based on oligonucleotide or other technologies, existing or
new, which are more effective than any that are being developed by the Company,
or which would render Hybridon's antisense technologies obsolete and
noncompetitive. Moreover, there currently are commercially available products
for the treatment of certain of the disease targets being pursued by the
Company.
-44-
7
Competitors of the Company engaged in all areas of biotechnology and
drug discovery in the U.S. and other countries are numerous and include, among
others, pharmaceutical and chemical companies, biotechnology firms, universities
and other research institutions. Many of the Company's competitors have
substantially greater financial, technical and human resources than the Company.
In addition, many of these competitors have significantly greater experience
than the Company in undertaking preclinical studies and human clinical trials of
new pharmaceutical products and obtaining FDA and other regulatory approvals of
products for use in health care. Furthermore, if the Company is permitted to
commence commercial sales of products, it will also be competing with respect to
manufacturing efficiency and marketing capabilities, areas in which it has
limited or no experience. Accordingly, the Company's competitors may succeed in
obtaining FDA or other regulatory approvals for products or in commercializing
such products more rapidly than the Company. See "Item 1. Business --
Competition."
Limited Manufacturing Capability
While the Company believes that its existing production capacity will
be sufficient to enable it to satisfy its current research needs and to support
the Company's preclinical and clinical requirements for oligonucleotide
compounds, the Company will need to purchase additional equipment to expand its
manufacturing capacity in order to satisfy its future requirements, subject to
obtaining regulatory approvals, for commercial production of its product
candidates. In addition, Hybridon Specialty Products Division is using the
Company's existing production capacity to custom contract manufacture synthetic
DNA products for commercial sale. As a result, depending on the level of sales
by the Hybridon Specialty Products Division, and the success of the Company's
product development programs, Hybridon's manufacturing capacity may not be
sufficient for production for both its internal needs and sales to third
parties. In addition, in order to successfully commercialize its product
candidates or achieve satisfactory margins on sales, the Company may be required
to reduce further the cost of production of its oligonucleotide compounds, and
there can be no assurance that the Company will be able to do so.
The manufacture of the Company's products is subject to GMP
requirements prescribed by the FDA or other standards prescribed by the
appropriate regulatory agency in the country of use. To the Company's knowledge,
therapeutic products based on chemically-modified oligonucleotides have never
been manufactured on a commercial scale. There can be no assurance that the
Company will be able to manufacture or obtain products in a timely fashion and
at acceptable quality and price levels, that it or its suppliers can manufacture
in compliance with GMP or other regulatory requirements or that it or its
suppliers will be able to manufacture an adequate supply of product. The Company
has in the past relied in part and may in the future rely upon third party
contractors in connection with the manufacture of some compounds. Reliance on
such third parties entails a number of risks, including the possibility that
such third parties may fail to perform on an effective or timely basis or fail
to abide by regulatory or contractual restrictions applicable to the Company.
See "Item 1. Business --Manufacturing. Technology and the Hybridon Specialty
Products Division."
There are three sources of supply for the nucleotide building blocks
used by the Company in its current oligonucleotide manufacturing process. This
process is covered by issued patents either held by or licensed to these three
companies. Therefore, these companies are likely the sole suppliers to Hybridon
of these nucleotide building blocks. The inability of Hybridon to obtain these
nucleotide building blocks from one of these suppliers could have a material
adverse effect on Hybridon.
-45-
8
Absence of Sales and Marketing Experience
The Company expects to market and sell certain of its products directly
and certain of its products through co-marketing or other licensing arrangements
with third parties. The Company has limited experience in sales, marketing or
distribution, and does not expect to establish a sales and marketing plan or
direct sales capability with respect to the products being developed by it until
such time as one or more of such products approaches marketing approval. In
addition, although the Company does have a limited direct sales capability with
respect to the sales of custom contract manufactured DNA products to third
parties by the Hybridon Specialty Products Division, the Company has entered
into a sales and marketing arrangement with Perkin-Elmer with respect to such
products and its reliant in par on the efforts of Perkin-Elmer to promote these
products. In order to market the products being developed by it directly, the
Company will be required to develop a substantial marketing staff and sales
force with technical expertise and with supporting distribution capability.
There can be no assurance that the Company will be able to build such a
marketing staff or sales force, that the cost of establishing such a marketing
staff or sales force will be justifiable in light of any product revenues or
that the Company's direct sales and marketing efforts will be successful. In
addition, if the Company succeeds in bringing one or more products to market, it
may compete with other companies that currently have extensive and well-funded
marketing and sales operations. There can be no assurance that the Company's
marketing and sales efforts would enable it to compete successfully against such
other companies. To the extent the Company enters into co-marketing or other
licensing arrangements, any revenues received by the Company will be dependent
in part on the efforts of third parties and there can be no assurance that such
efforts will be successful. See "Item 1. Business -- Marketing Strategy."
No assurance of Market Acceptance
Pharmaceutical products, if any, resulting from the Company's research
and development programs are not expected to be commercially available for a
number of years. There can be no assurance that, if approved for marketing, such
products will achieve market acceptance. The degree of market acceptance will
depend upon a number of factors, including the receipt of regulatory approvals,
the establishment and demonstration in the medical community of the clinical
efficacy and safety of the Company's products and their potential advantages
over existing treatment methods and reimbursement policies of government and
third-party payors. There is no assurance that physicians, patients, payors or
the medical community in general will accept or utilize any products that may be
developed by the Company.
Product Liability Exposure and Insurance
The use of any of the Company's potential products in clinical trials
and the commercial sale of any products, including the products being developed
by it and the DNA products and reagents manufactured and sold on a custom
contract basis by the Hybridon Specialty Products Division, may expose the
Company to liability claims. These claims might be made directly by consumers,
health care providers or by pharmaceutical and biotechnology companies or others
selling such products. Hybridon has product liability insurance coverage, and
such coverage is subject to various deductibles. Such coverage is becoming
increasingly expensive, and no assurance can be given that the Company will be
able to maintain or obtain such insurance at reasonable cost or in sufficient
amounts to protect the Company against losses due to liability claims that could
have a material adverse effect on the Company.
-46-
9
Hazardous Materials
The Company's research and development and manufacturing activities
involves the controlled use of hazardous materials, chemicals, viruses and
various radioactive compounds. Although the Company believes that its safety
procedures for handling and disposing of such materials comply with the
standards prescribed by federal, state and local regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages that result and any such liability could have a material adverse
effect on the Company.
Uncertainty of Pharmaceutical Pricing and Adequate Reimbursement
The Company's ability to commercialize its pharmaceutical products
successfully will depend in part on the extent to which appropriate
reimbursement levels for the cost of such products and related treatment are
obtained from government authorities, private health insurers and other
organizations, such as health maintenance organization ("HMO's)". Third-party
payors are increasingly challenging the prices charged for medical products and
services. Also the trend towards managed health care in the U.S. and the
concurrent growth of organizations such as HMO's, which could control or
significantly influence purchase of health care services and products, as well
as legislative proposals to reduce government insurance programs, may all result
in lower prices for the Company's products. The cost containment measures that
health care providers are instituting could affect the Company's ability to sell
its products and may have a material adverse effect on the Company.
Uncertainty of Health Care Reform Measures
Federal, state and local officials and legislators (and certain foreign
government officials and legislators) have proposed or are reportedly
considering proposing a variety of reforms to the health care systems in the
U.S. and abroad. The Company cannot predict what health care reform legislation,
if any, will be enacted in the U.S. or elsewhere. Significant changes in the
health care system in the U.S. or elsewhere are likely to have a substantial
impact over time on the manner in which the Company conducts its business. Such
changes could have a material adverse effect on the Company. The existence of
pending health care reform proposals could have a material adverse effect on the
Company's ability to raise capital. Furthermore, the Company's ability to
commercialize its potential products may be adversely affected to the extent
that such proposals have a material adverse effect on the business, financial
condition and profitability of other companies that are prospective corporate
partners with respect to certain of the Company's proposed products.
Attraction and Retention of Key Employees and Scientific Collaborators
The Company is highly dependent on the principal members of its
management and scientific staff, including E. Andrews Grinstead, III, the
Company's Chairman of the Board, President and Chief Executive Officer, and
Sudhir Agrawal, The Company's Senior Vice President of Discovery and Chief
Scientific Officer, the loss of whose services could have a material adverse
effect on the Company. Furthermore, recruiting and retaining qualified
scientific personnel to perform research and development work in the future will
also be critical to the Company's success. There can be no assurance that the
Company will be able to attract and retain scientific personnel on acceptable
terms given the competition for experienced scientists among numerous
pharmaceutical, biotechnology and health care companies, universities and
non-profit research institutions.
The Company's anticipated growth and expansion into areas and
activities requiring additional expertise, such as clinical testing,
governmental approvals, production and marketing, are expected to require the
addition of new management personnel and the development of additional expertise
by
-47-
10
existing management personnel. The failure to acquire such services or to
develop such expertise could have a material adverse effect on the Company.
The Company's success will depend in part on its continued ability to
develop and maintain relationships with independent researchers and leading
academic and research institutions. The competition for such relationships is
intense, and there can be no assurance that the Company will be able to develop
and maintain such relationships on acceptable terms. The Company has entered
into a number of such collaborative relationships relating to specific disease
targets and other research activities in order to augment its internal research
capabilities and to obtain access to the specialized knowledge or expertise of
its collaborative partners. The loss of any such collaborative relationship
could have an adverse effect on the Company's ability to conduct research and
development in the area targeted by such collaboration. See "Item 1. Business -
- -Hybridon Drug Development and Discovery Programs" and "- - Academic and
Research Collaborations."
Concentration of Ownership by Directors and Executive Officer
The Company's directors and executive officers and their affiliates
beneficially own approximately 18.89% of the Company's outstanding Common Stock
(including 4,217,857 shares issuable upon exercise of outstanding warrants and
options held by the Company's directors and executive officers and their
affiliates which are exercisable within the 60-day period following February 28,
1997). As a result, these stockholders, if acting together, may 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 the Company.
-48-
