Item 3.
Legal Proceedings
In 2004, numerous complaints were filed in the United States District Court for the District of New Jersey against Genta and certain of our principal officers on behalf of purported classes of our shareholders who purchased our securities during several class periods. The complaints have been consolidated into a single action and allege that we and certain of our principal officers violated the federal securities laws by issuing materially false and misleading statements regarding Genasense® for the treatment of melanoma that had the effect of artificially inflating the market price of our securities. The shareholder class action complaint in the various actions seeks monetary damages in an unspecified amount and recovery of plaintiffs’ costs and attorneys’ fees. In addition, three shareholder derivative actions have been filed against the directors and certain officers of Genta in New Jersey State and Federal courts. Based on facts substantially similar to those asserted in the shareholder class actions, the derivative plaintiffs claim that defendants have breached their fiduciary duties to the shareholders and other violations of New Jersey law. The Company believes these litigations are without merit and will vigorously defend against these suits.
Management does not believe that this litigation will have a material adverse impact on the Company’s financial results or liquidity.
Item 4.
Item 4.
Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders in the quarter ended December 31, 2004.
Item 5.
Item 5.
Market For Registrant’s Common Equity and Related Stockholder Matters
(a) Market Information
The Company’s common stock is traded on the Nasdaq National Market under the symbol “GNTA.” The following table sets forth, for the periods indicated, the high and low sales prices for the common stock as reported by Nasdaq.
(b) Holders
There were 605 holders of record of the Company’s common stock as of March 9, 2005.
(c) Dividends
The Company has never paid cash dividends on its common stock and does not anticipate paying any such dividends in the foreseeable future. The Company currently intends to retain its earnings, if any, for the development of its business.
(f) Use of Proceeds
In December 2004, the Company raised $21.6 million, net of issuance costs, from the issuance of common stock pursuant to our shelf registration statement. The net proceeds from the sale of the common stock will be used for general corporate purposes.
Item 6.
Item 6.
Selected Consolidated Financial Data
Item 7.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Since its inception in February 1988, Genta has devoted its principal efforts toward drug discovery and research and development. Genta’s strategy is to build a product and technology portfolio primarily focused on its cancer-related products. Genta has been unprofitable to date and expects to incur substantial operating losses due to continued requirements for ongoing and planned research and development activities, pre-clinical and clinical testing, manufacturing activities, regulatory activities and establishment of a sales and marketing organization. From our inception to December 31, 2004, we have incurred a cumulative net loss of $356.0 million. We have experienced significant quarterly fluctuations in operating results and we expect that these fluctuations in revenues, expenses and losses will continue.
Our financial results in 2004 have been and will continue to be significantly affected by FDA action with respect to Genasense®. In late 2003 we filed a NDA for Genasense® to be used in combination with dacarbazine for the treatment of patients with melanoma who have not previously received chemotherapy. In the absence of increased survival, the FDA Oncology Drugs Advisory Committee voted that the evidence presented did not provide substantial evidence of effectiveness, as measured by response rate and progression-free survival, to outweigh the increased toxicity of administering Genasense® for the treatment of patients with metastatic melanoma who have not received prior chemotherapy. On May 13, 2004 the Company announced that it had withdrawn its NDA. On the same day, the Company initiated a series of steps that were designed to conserve cash in order to focus on Genasense®. The Company reduced its workforce by 85 employees, or approximately 45%, including its field sales employees. The Company also significantly reduced its marketing support of Ganite®, its only marketed product. In August 2004, Genta closed its research facility in Salt Lake City, Utah, with a further reduction of 15 employees.
In November 2004, the Company reported results from a randomized Phase 3 clinical trial of Genasense® in patients with relapsed or refractory chronic lymphocytic leukemia (CLL). Two hundred forty one patients were randomized to receive standard chemotherapy with fludarabine and cyclophosphamide with or without Genasense®. The primary objective of the study was to evaluate whether the addition of Genasense® would increase the proportion of patients who attained major objective responses (defined as complete remission or a nodular partial remission), as determined by review of clinical data and bone marrow biopsies using experts who were blinded as to treatment assignment. Analysis of study results has shown that the addition of Genasense® to chemotherapy was associated with a statistically significant increase in the major objective response rate compared with the rate observed in patients who were treated with chemotherapy alone. A significant increase in disease-free survival was also observed. No difference was observed in overall response rate, time-to-disease progression, or overall survival. The incidence of certain serious adverse reactions, including but not limited to nausea, fever and catheter-related complications, was increased in patients treated with Genasense®. Adverse events (irrespective of relation to study drugs) during treatment or within 30 days from last dose of treatment that resulted in death occurred in 9 patients treated with Genasense® plus chemotherapy compared with 5 patients treated with chemotherapy alone. The percentage of patients who experienced serious adverse events was increased in the Genasense arm; however, the percentages of patients who discontinued treatment due to adverse events were equal in the treatment arms.
In November 2004, Genta reported that the Company's randomized Phase 3 clinical trial of Genasense® in patients with multiple myeloma did not meet its primary endpoint. The trial had been designed to evaluate whether the addition of Genasense® to standard therapy with high-dose dexamethasone could increase the time to development of progressive disease in patients who previously had received extensive therapy. As a result of the outcome of the Phase 3 trial, the Company has virtually eliminated activities on this indication.
A significant source of funds during the last several years has been provided by the Company’s collaboration with Aventis, regarding the development and commercialization of Genasense®. The key financial aspects of the Collaborative Agreement were the following:
Aventis committed to provide up to $476.9 million in initial payments, milestone payments and for the purchase from us of equity and convertible notes.
If Genasense® received marketing approval from the FDA, we would have been entitled to royalties on Aventis’ exclusive worldwide net sales of Genasense®.
Aventis agreed to pay 75% of the development costs related to any U.S. NDA incurred by either us or Aventis subsequent to the execution of our Collaborative Agreement, and substantially all other development, marketing, and sales costs incurred worldwide.
Aventis agreed to reimburse a portion of our expenses in building our sales force to market in the United States.
On November 8, 2004 the Company received from Aventis notice of termination of the agreements between Genta and Aventis. Pursuant to those agreements, Aventis will continue to support the development of Genasense® for a six-month period lasting until May 8, 2005.
Results of Operations
Total Revenues
Total revenues, consisting of license fees, development funding and product sales were $14.6 million in 2004 compared to $6.7 million in 2003 and $3.6 million in 2002. License fees and development funding revenues are generated by the initial $10.0 million licensing fee and $40.0 million development funding received from Aventis in 2002 under the Collaborative Agreement (see Note 4 to our financial statements), along with non-exclusive sub-license agreements involving antisense technology. On November 8, 2004 Aventis gave notice to Genta that it was terminating its Collaborative Agreement with the Company regarding the development and commercialization of Genasense®. Under the terms of the Collaborative Agreement, Aventis will continue to fund ongoing development activities through May 8, 2005. The Company had previously determined that, due to the nature of the ongoing development work related to the Collaborative Agreement, the end of the development phase and the fair-value of the undelivered elements were not determinable. Accordingly, we deferred recognition of the initial licensing fee and up-front development funding received from Aventis and recognized these payments on a straight-line basis over the original estimated useful life of the related first-to-expire patent of 115 months. As a result of the notice of termination of the Collaborative Agreement, the Company has determined that the period over which the remaining deferred revenue should be recognized will be through May 8, 2005. On November 9, 2004 we began to recognize the remaining deferred revenue over a six-month period, resulting in increased revenue of $9.9 million for 2004.
In October 2003, the Company launched the commercial product Ganite® for the treatment of cancer-related hypercalcemia that is resistant to hydration, generating $1.4 million in product sales in 2003. In May 2004, the Company eliminated its sales force and significantly reduced its marketing support for Ganite®. After evaluating various options, we decided during the third quarter of 2004 to continue selective marketing support of the product. In December 2004, a wholesaler contacted the Company to return a significant portion of its inventory of Ganite®. The Company agreed to the return of this product and recorded a provision for sales returns, as well as provided for potential returns from other wholesalers. Our provision for sales returns increased by $1.2 million in 2004, resulting in net sales of ($.5) million for 2004.
Total revenues for 2003 of $6.7 million increased $3.1 million from the prior-year period. As we entered into the Collaborative Agreement in April 2002, 2002 annual results included the recognition of eight months of license fee and development funding revenue received from Aventis, while 2003 annual results included the recognition of twelve months of revenue. In October 2003, the Company launched Ganite®, generating $1.4 million in product sales.
Cost of goods sold
During 2004 we recorded provisions for excess Ganite® inventory of $1.4 million.
Research and Development Expenses
Research and development expenses before reimbursement were $71.5 million in 2004 compared to $83.1 million in 2003 and $87.2 million in 2002.
Approximately $66.8 million or 93% of research and development expenses before reimbursement were incurred on the Genasense® project for the twelve months ended December 31, 2004. Research and development expenses in 2004 include $33.0 million related to the expensing of vialed Genasense® product and Genasense® bulk drug substance, much of which had been originally produced and acquired to be commercial inventory and other expenses related to the manufacturing and purchase of Genasense® bulk drug substance. Research and development expenses in 2003 include a $13.5 million write-off of acquired in-process research and development resulting from the August 2003 acquisition of Salus Therapeutics, Inc. In August 2004, Genta completed the closure of its research facility in Salt Lake City, which had originated from the acquisition of Salus Therapeutics, Inc. Excluding these items, research and development expenses declined $31.1 million in 2004, primarily resulting from our decision in May 2004 to reduce staff and reduce most non-Genasense® related programs, as well as from the comparison to a prior-year period where expenses were significantly higher resulting from Genasense® Phase 3 clinical trials and NDA preparation activities.
Research and development expenses incurred on the Genasense® project in 2003 were approximately $63.5 million, representing 91% of research and development expenses after excluding the write-off of acquired in-process research and development expenses.
During 2002, we purchased substantial amounts of drug substance to be used in Genasense® Phase 3 clinical trials, leading to higher research and development expenses.
Due to the significant risks and uncertainties inherent in the clinical development and regulatory approval processes, the nature, timing and costs of the efforts necessary to complete projects in development are not reasonably estimable. Results from clinical trials may not be favorable. Data from clinical trials are subject to varying interpretation and may be deemed insufficient by the regulatory bodies reviewing applications for marketing approvals. As such, clinical development and regulatory programs are subject to risks and changes that may significantly impact cost projections and timelines.
Selling, general and administrative expenses
Selling, general and administrative expenses were $28.6 million in 2004 compared to $29.8 million in 2003 and $20.6 million in 2002. In 2004, a higher rate of spending in the first half of the year, in anticipation of approval and launch of Genasense®, was more than offset by the impact of the May 2004 elimination of the sales force, reduction of other administrative positions and substantial reduction of marketing support for Ganite®. This net decrease was partially offset by the recognition of $1.0 million of legal expenses related to a shareholder class action suit and three shareholder derivative suits (see Note 19 to our financial statements).
During 2003, expenses substantially increased from 2002 due to the creation of a sales force, Ganite® launch activities, a larger administrative staff and higher general corporate expenses driven by business growth.
Loss on disposition of property and equipment
In August 2004, we completed the closure of our research facility in Salt Lake City, sold all related equipment and assigned our lease on the facility to another company. Additionally, we disposed of excess equipment at corporate headquarters. As a result of these actions, we recorded a loss on disposition of property and equipment of approximately $1.3 million.
Aventis Reimbursement
Under the Collaborative Agreement with Aventis, Aventis paid 75% of U.S. NDA-directed development costs incurred by either Genta or Aventis and 100% of all other development, marketing and sales costs incurred within the U.S. and elsewhere as subject to the Collaborative Agreement. A breakdown of the various third-party, drug supply costs and internal costs of scientific and technical personnel (“Full-Time Equivalents” or “FTE’s”) that Aventis is required to reimburse under our Collaborative Agreement with Aventis, follows ($ thousands):
Net expense reimbursement from Aventis of $43.3 million for 2004 decreased from $55.9 million for 2003 primarily due to the greater activity and expenses in 2003 resulting from the NDA filing for Genasense®. Purchases of drug material are expensed as incurred and are not reimbursable pursuant to our Collaborative Agreement with Aventis until they are used in clinical trials.
In September 2004, the Company transferred $15.5 million of vialed Genasense® drug product and Genasense® bulk drug substance to Aventis; this material had been expensed in May 2004. This amount is included in Drug supply costs in the above table. The companies agreed to offset amounts owed under the line of credit extended by Aventis under the Collaborative Agreement (“Line of Credit”) by $14.8 million and accrued interest on the Line of Credit by $.7 million (see Note 13 to our financial statements).
Once Aventis provided notice of termination of the Collaborative Agreement, all payments otherwise due from Aventis have been and will continue to be applied against any balance on the Line of Credit until the Line of Credit is repaid. In 2004, $12.9 million of reimbursement due to Genta was applied to the balance of the Line of Credit.
Net expense reimbursement from Aventis of $55.9 million for the year ended December 31, 2003 increased from $28.5 million for the year ended December 31, 2002 due to the following factors: the comparison of twelve months of activity in 2003 compared to eight months in 2002, greater activity and expenses resulting from the NDA filing for Genasense® and reimbursement for 2002 and 2003 drug substance purchases used in Phase 3 clinical trials.
Reimbursement to Aventis consists of our 25% share of third party costs incurred by Aventis and internal costs of Aventis’ scientific and technical personnel.
Gain on extinguishment of debt
On November 8, 2004, Aventis gave notice to Genta that it was terminating its Collaborative Agreement with the Company. Under the terms of the Collaborative Agreement, Aventis has forgiven the $10.0 million of convertible debt issued to them in connection with the collaboration, along with $1.5 million in accrued interest, resulting in a gain on extinguishment of debt of $11.5 million.
Other (expense)/income
Net other expense of $.1 million for 2004 unfavorably compared to net other income of $.7 million for the prior year, primarily due to lower average investment balances throughout 2004 as compared to 2003. Net other income of $.7 million for 2003 declined $.7 million, or 50%, from 2002, principally due to lower investment balances and higher borrowings from Aventis.
Income tax benefit/(expense)
New Jersey has enacted legislation permitting certain corporations located in New Jersey to sell state tax loss carryforwards and state research and development credits. During 2004, New Jersey allowed the Company to sell $11.6 million of its net operating loss carryforwards and we received $0.9 million from the sale, which we recognized as income tax benefit.
If still available under New Jersey law, the Company will attempt to sell its tax loss carryforwards in 2005. We cannot be assured that the New Jersey program will continue next year, nor can we estimate what percentage of our saleable tax benefits New Jersey will permit us to sell, how much money will be received in connection with the sale, or if the Company will be able to find a buyer for its tax benefits.
Net Loss
Genta incurred a net loss of $32.7 million, or $0.41 per share, for 2004, $50.1 million, or $0.67 per share, for 2003 and a net loss of $74.5 million, or $1.05 per share, for 2002. In 2004, the improvement in net loss and per share net loss to common shareholders was primarily due to accelerated recognition of the initial licensing fee and up-front development funding previously received from Aventis and the gain on extinguishment of debt as described above. In 2003, the improvement in net loss and per share net loss to common shareholders was primarily due to lower clinical drug substance purchases and higher reimbursement by Aventis as described above.
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement (“SFAS”) No. 123(R), Share-Based Payment that will require compensation costs related to share-based payment transactions to be recognized in the financial statements. With limited exceptions, the amount of compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. In addition, liability awards will be remeasured each reporting period. Compensation cost will be recognized over the period that an employee provides service in exchange for the award. SFAS No. 123(R) replaces SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees. The Company will adopt the provisions of SFAS No. 123R in 2005. We are evaluating the impact that the adoption of this standard will have on the Company’s results of operations, financial position or cash flows.
In December 2004, the FASB issued SFAS No. 153, Exchanges of Non-monetary Assets, an amendment of APB Opinion No. 29. We do not expect that the adoption of this statement will have any impact on the Company’s results of operations, financial position or cash flows.
In November 2004, the FASB issued SFAS No. 151, Inventory Costs, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material. As the Company uses third-party manufacturers and does not manufacture its own products, we do not expect that the adoption of this statement will have a material impact on the Company’s results of operations, financial position or cash flows.
Critical Accounting Policies
Our significant accounting policies are more fully described in Note 2 to our consolidated financial statements. In preparing our financial statements in accordance with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that, among other things, affect the reported amounts of assets and liabilities and reported amounts of revenues and expenses. These estimates are most significant in connection with our critical accounting policies, namely those of our accounting policies that are most important to the portrayal of our financial condition and results and require management’s most difficult, subjective or complex judgments. These judgments often result from the need to make estimates about the effects of matters that are inherently uncertain. Actual results may differ from those estimates under different assumptions or conditions. The Company believes that the following represent its critical accounting policies:
Revenue recognition. Our policy is to recognize revenues under license arrangements when delivery has occurred or services have been rendered, persuasive evidence of an arrangement exists, the fee is fixed and determinable and collectibility is reasonably assured. Royalties are recognized when earned. Consistent with Staff Accounting Bulletin No. 104 Revenue Recognition, initial funding of ongoing development received from Aventis, after the achievement of certain research and development milestones were being recognized on a straight-line basis over the original estimated useful life of the related first-to-expire patent of 115 months. On November 8, 2004 we received from Aventis notice of termination of the agreements between Genta and Aventis, with an effective termination date of May 8, 2005. Accordingly, we are recognizing the remaining balance of the initial funding on a straight-line basis over the time period from November 9, 2004 through May 8, 2005 (see Note 12 to our financial statements).
Genta recognizes revenue from product sales when title to product and associated risk of loss has passed to the customer and we are reasonably assured of collecting payment for the sale. All revenue from product sales are recorded net of applicable allowances for returns, rebates and other applicable discounts and allowances. We allow return of our product for up to twelve months after product expiration. In May 2004 the Company eliminated its sales force and significantly reduced its marketing support for Ganite®. After evaluating various options, we decided during the third quarter of 2004 to continue selective marketing support of the product. In December 2004, a wholesaler contacted the Company to return a significant portion of its inventory of Ganite®. The Company agreed to the return of this product and recorded a provision for sales returns, as well as provided for potential returns from other wholesalers. Our provision for sales returns increased by $1.2 million in 2004.
Research and development costs. All such costs are expensed as incurred, including raw material costs required to manufacture drugs for clinical trials. Reimbursements for applicable Genasense® related costs under the Collaborative Agreement, will continue to be recorded as a reduction to expense (see Note 4 to our financial statements).
Liquidity and Capital Resources
At December 31, 2004, we had cash, cash equivalents and marketable securities totaling $42.2 million, a decline of $40.7 million from $82.9 million at December 31, 2003. During 2004 cash flow used in operating activities was $61.2 million, primarily resulting from a net loss of $32.7 million and non-cash reimbursements of research and development expenses of $27.3 million. Partially offsetting this outflow, in December we raised $21.6 million, net of issuance costs, from the issuance of common stock. Although no assurances can be expressed, management believes that at the current rate of spending, the Company should have sufficient cash funds to maintain its present operations through 2005.
At December 31, 2004, the Company had $7.3 million outstanding (compared to $35.0 million as of December 31, 2003) on the Line of Credit from Aventis. Prior to June 30, 2004 the Line of Credit was classified as long term debt and beginning June 30, 2004, it was classified as short term debt. During 2004, as a result of certain non-cash transactions, the Company reduced amounts owed under the Line of Credit by $27.7 million. As a result of Aventis’ purchase commitments to Genta, in September we supplied $15.5 million of vialed Genasense® drug product and Genasense® bulk drug substance to Aventis. This amount is included in the Company’s Consolidated Statement of Operations as Aventis reimbursement. The companies agreed to offset amounts owed under the Line of Credit by $14.8 million and accrued interest on the Line of Credit by $0.7 million. With the Aventis notice of termination, Genta cannot borrow additional funds and the Line of Credit must be repaid no later than May 8, 2005. All payments otherwise due to Genta are applied against any balance on the Line of Credit until the Line of Credit is repaid. In 2004, $12.9 million of reimbursement due to Genta was applied to the balance of the Line of Credit. Under the terms of the Collaborative Agreement, Aventis will continue to reimburse Genta for ongoing Genasense® clinical trials and development activities during the six-month notice period. We expect that a substantial portion of the $7.3 million outstanding on the Line of Credit will be repaid through the application of reimbursements. After May 8, 2005, all Genasense® costs will be the responsibility of Genta.
The terms of the Line of Credit provide for a favorable interest rate, which is set two days prior to the first day of each calendar quarter. As security for the repayment of the Line of Credit, Genta has granted Aventis a security interest in all of its rights to payments under the Collaborative Agreement, as well as all inventory related to Genasense®.
At December 31, 2003 cash, cash equivalents and marketable securities totaling $82.9 million declined $30.8 million from $113.7 million at December 31, 2002. During 2003, cash flow used in operating activities was $64.4 million, primarily resulting from a net loss of $50.1 million and lower accounts payable and accrued expenses of $17.4 million. Partially offsetting this outflow were borrowings under the Line of Credit from Aventis of $35.0 million.
At December 31, 2002 cash, cash equivalents and marketable securities totaling $113.7 million increased $59.6 million from $54.1 million at December 31, 2001. During 2002, cash flow used in operating activities was $20.4 million, primarily resulting from a net loss of $74.5 million offset by the initial $10.0 million licensing fee and $40.0 million development funding received from Aventis under our collaborative agreement in 2002. The Company had proceeds of $71.0 million from a private placement of common stock and $10.0 million from the sale of convertible debt to Aventis.
Our principal expenditures relate to our research and development activities, primarily focused on Genasense®, which include our ongoing and future clinical trials. We expect these expenditures to continue. The Company currently anticipates total company average monthly cash outflows to be in the $3.0 million to $4.0 million range. Although no assurances can be expressed, management believes that at the current rate of spending, the Company should have sufficient cash funds to maintain its present operations through 2005. The Company may also seek collaborative agreements and other financing arrangements with potential corporate partners and other sources. However, there can be no assurance that any such collaborative agreements or other sources of funding will be available on favorable terms, if at all. The Company will need substantial additional funds before it can expect to realize significant product revenue.
If we obtain NDA approval of Genasense® we anticipate seeking additional product development opportunities through potential acquisitions or investments. Such acquisitions or investments may consume cash reserves or require additional cash or equity. Our working capital and additional funding requirements will depend upon numerous factors, including: (i) the progress of our research and development programs; (ii) the timing and results of pre-clinical testing and clinical trials; (iii) the level of resources that we devote to sales and marketing capabilities; (iv) technological advances; (v) the activities of competitors; (vi) our ability to establish and maintain collaborative arrangements with others to fund certain research and development efforts, to conduct clinical trials, to obtain regulatory approvals and, if such approvals are obtained, to manufacture and market products and (vii) legal costs and the outcome of outstanding legal proceedings.
Contractual Obligations
Future contractual obligations at December 31, 2004 are as follows ($ thousands):
(1) Consists of amounts under our line of credit with Aventis which are due on May 8, 2005.
Not included in the above table are any Genasense® bulk drug purchase obligations to Avecia per the terms of the Manufacturing and Supply Agreement entered into between Avecia and Genta in December 2002. The agreement calls for Genta to purchase a percentage of our global Genasense® bulk drug requirements from Avecia during the term of the agreement. Due to the uncertainties regarding the timing of any Genasense® approval and sales/volume projections, specific obligation amounts cannot be estimated at this time. Due to past purchases of Genasense® bulk drug substance, the Company has access to sufficient drug for its current needs.
Item 7A.
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
Our carrying values of cash, marketable securities, accounts payable, accrued expenses and debt are a reasonable approximation of their fair value. The estimated fair values of financial instruments have been determined by us using available market information and appropriate valuation methodologies (see Note 2 to our financial statements). We have not entered into and do not expect to enter into, financial instruments for trading or hedging purposes. We do not currently anticipate entering into interest rate swaps and/or similar instruments.
Genta’s primary market risk exposure with regard to financial instruments is to changes in interest rates, which would impact interest income earned on such instruments. We have no material currency exchange or interest rate risk exposure as of December 31, 2004. Therefore there will be no ongoing exposure to material adverse effect on our business, financial condition or results of operation for sensitivity to changes in interest rates or to changes in currency exchange rates.
Item 8.
Item 8.
Financial Statements and Supplemental Data
Genta Incorporated
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Genta Incorporated:
We have audited the accompanying consolidated balance sheets of Genta Incorporated and subsidiaries (the “Company”) as of December 31, 2004 and 2003, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Genta Incorporated and subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note (1) to the consolidated financial statements of Genta Incorporated, the Company received from Aventis notice of termination of the agreements between Aventis and the Company in November 2004. The implications of such termination to the Company are discussed in Note (1) to the consolidated financial statements.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 14, 2005 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
March 14, 2005
GENTA INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value data)
See accompanying notes to consolidated financial statements.
GENTA INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
See accompanying notes to consolidated financial statements.
GENTA INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Years Ended December 31, 2004, 2003 and 2002
GENTA INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Years Ended December 31, 2004, 2003 and 2002
GENTA INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
See accompanying notes to consolidated financial statements.
GENTA INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2004, 2003 and 2002
1. Organization and Business
Genta Incorporated (“Genta” or the “Company”) is a biopharmaceutical company engaged in pharmaceutical (drug) research and development, its sole reportable segment. The Company is dedicated to developing innovative drugs to treat cancer. In the past, the Company’s research efforts have focused primarily on the development of “antisense” drugs, which are designed to selectively prevent the production of specific proteins that contribute to the cause or progression of disease. More recently, the Company has broadened its research portfolio into other “DNA medicines”, which, in addition to antisense drugs, consist of decoy aptamers and small molecules, which include the Company’s gallium products.
The Company has had recurring operating losses since its inception. Management expects that such losses will continue at least until its lead product, Genasense®, receives approval from the U.S. Food and Drug Administration (“FDA”) for commercial sale in one or more indications. Achievement of profitability for the Company is dependent on the timing of Genasense® regulatory approvals in the U.S. and outside the U.S. A significant source of funds during the last several years has been from the Company’s collaboration with Aventis, a member of the sanofi-aventis Group (“Aventis”), regarding the development and commercialization of Genasense®. On November 8, 2004 the Company received from Aventis notice of termination of the agreements between Genta and Aventis. Pursuant to those agreements, Aventis will continue to support the development of Genasense® for a six-month period lasting until May 8, 2005. Although no assurances can be expressed, management believes that at the current rate of spending, the Company should have sufficient cash funds to maintain its present operations through 2005. There are a number of alternatives available to the Company to sustain its operations beyond 2005 should there be a delay in approval of Genasense®.
The Company may also seek collaborative agreements, equity financing and other financing arrangements with potential corporate partners and other sources. However, there can be no assurance that any such collaborative agreements or other sources of funding will be available on favorable terms, if at all. The Company will need substantial additional funds before it can expect to realize significant product revenue.
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements are presented on the basis of accounting principles generally accepted in the United States. All professional accounting standards that are effective as of December 31, 2004 have been considered in preparing the consolidated financial statements. Such financial statements include the accounts of the Company and all majority-owned subsidiaries. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect reported earnings, financial position and various disclosures. Actual results could differ from those estimates. Certain reclassifications have been made to prior-year amounts to conform to current-year presentation.
Revenue Recognition
In April 2002, the Company entered into a development and commercialization agreement (“Collaborative Agreement”) with Aventis. Under the terms of the Collaborative Agreement, the Company and Aventis would jointly develop and commercialize Genasense® in the U.S., and Aventis would have exclusive development and marketing rights to the compound in all countries outside of the U.S. Under the Collaborative Agreement, Aventis would pay 75% of U.S. New Drug Application (NDA)-directed development costs incurred by either Genta or Aventis, subsequent to the execution of the Collaborative Agreement, and 100% of all other development, marketing, and sales costs incurred within the U.S. and elsewhere as subject to the Collaborative Agreement. On November 8, 2004 Aventis gave notice to Genta that it was terminating its Collaborative Agreement with the Company. Under the terms of the agreement, Aventis will continue to fund ongoing development activities through May 8, 2005.
The Company follows the provisions of the Securities and Exchange Commission’s Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition and Emerging Issues Task Force (EITF) No. 00-21 , Accounting for Revenue Arrangements with Multiple Deliverables.
In accordance with EITF No. 00-21 the Company analyzes its multiple element arrangements to determine whether the elements can be separated and accounted for individually as separate units of accounting. The Company recognizes license payments as revenue if the license has stand-alone value and the fair value of the undelivered items can be determined. If the license is considered to have stand-alone value but the fair value on any of the undelivered items cannot be determined, the license payments are recognized as revenue over the period of performance for such undelivered items or services. The Company’s estimate of the period of performance involves management judgment. Amounts received for milestones are recognized upon achievement of the milestone, as long as the milestone is deemed to be substantive and the Company has no other performance obligations.
The Company determined that, due to the nature of the ongoing development work related to our Collaborative Agreement with Aventis, the end of the development phase and the fair value of the undelivered elements were not determinable. Accordingly, the Company deferred recognition of the initial licensing fee and up-front development funding received from Aventis and recognized these payments on a straight-line basis over the original estimated useful life of the related first-to-expire patent of 115 months. As a result of the notice of termination of the agreement with Aventis, the Company determined that the period over which the remaining deferred revenue should be recognized will be through May 8, 2005. In accordance with EITF No. 00-21 and SAB No. 104, the Company has reclassified the remaining deferred revenue as current and will recognize such revenue through May 8, 2005.
Genta recognizes revenue from product sales when title to product and associated risk of loss has passed to the customer and the Company is reasonably assured of collecting payment for the sale. All revenue from product sales are recorded net of applicable allowances for returns, rebates and other applicable discounts and allowances. The Company allows return of its product for up to twelve months after product expiration. In May 2004 the Company eliminated its sales force and significantly reduced its marketing support for Ganite®. After evaluating various options, the Company decided during the third quarter of 2004 to continue selective marketing support of the product. In December 2004, a wholesaler contacted the Company to return a significant portion of its inventory of Ganite®. The Company agreed to the return of this product and recorded a provision for sales returns, as well as provided for potential returns from other wholesalers. The Company’s provision for sales returns increased by $1.2 million in 2004.
Research and Development
Research and development costs are expensed as incurred, including raw material costs required to manufacture products for clinical trials. Reimbursements for applicable Genasense®-related costs, under the Collaborative Agreement, have been recorded as a reduction to expenses in the Consolidated Statement of Operations. Research and development expenses in 2003 include $13.5 million from the write-off of acquired in-process research and development related to the acquisition of Salus Therapeutics, Inc. in August 2003.
Cash, Cash Equivalents and Marketable Securities
The carrying amounts of cash, cash equivalents and marketable securities approximate fair value due to the short-term nature of these instruments. Marketable securities primarily consist of government securities, all of which are classified as available-for-sale marketable securities. Management determines the appropriate classification of securities at the time of purchase and reassesses the classification at each reporting date.
Property and Equipment
Property and equipment is stated at cost and depreciated on the straight-line method over the estimated useful lives of the assets, ranging from three to five years. Leasehold improvements incurred in the renovation of the Company’s current offices are being amortized over the remaining life of the leases. The Company’s policy is to evaluate the appropriateness of the carrying value of the undepreciated value of long-lived assets. If such evaluation were to indicate an impairment of assets, such impairment would be recognized by a write-down of the applicable assets. Based on the valuation, no impairment was indicated in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
Intangible Assets
Intangible assets, consisting of capitalized patent costs, are amortized using the straight-line method over their estimated useful lives of five years. The Company’s policy is to evaluate the appropriateness of the carrying values of the unamortized balances of intangible assets. If such evaluation were to indicate an impairment of these assets, such impairment would be recognized by a write-down of the applicable assets. Based on the valuation, no impairment was indicated in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
Inventories
Inventories are stated at the lower of cost or market with cost being determined using the first-in, first-out (FIFO) method.
Income Taxes
The Company uses the liability method of accounting for income taxes. Deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given the provisions of the enacted tax laws.
Management records valuation allowances against net deferred tax assets, if based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and when temporary differences become deductible. The Company considers, among other available information, uncertainties surrounding the recoverability of deferred tax assets, scheduled reversals of deferred tax liabilities, projected future taxable income and other matters in making this assessment. The Company reviewed its deferred tax assets and at both December 31, 2004 and December 31, 2003, used a valuation allowance to reduce these assets to zero to reflect that, more likely than not, they will not be realized.
Stock Options
The Company has two stock-based compensation plans (Note 18). The Company accounts for stock-based compensation arrangements in accordance with provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees and complies with the disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation. Under APB Opinion No. 25, compensation expense is based on the difference, if any, on the date of grant, between the fair value of the Company's stock and the exercise price. The Company accounts for stock options issued to non-employees in accordance with the provisions of SFAS No. 123, and EITF Consensus on Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services. The Company is amortizing deferred stock compensation using the graded vesting method, in accordance with Financial Accounting Standards Board Interpretation (“FIN”) No. 28, over the vesting period of each respective option, which is generally four years.
In December 2004, the FASB issued SFAS No. 123(R) Share-Based Payment that will require compensation costs related to share-based payment transactions to be recognized in the financial statements. With limited exceptions, the amount of compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. In addition, liability awards will be remeasured each reporting period. Compensation cost will be recognized over the period that an employee provides service in exchange for the award. SFAS No. 123(R) replaces SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. The Company will adopt the provisions of SFAS No. 123R in 2005. The Company is evaluating the impact that the adoption of this standard will have on its results of operations, financial position or cash flows.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure - Amendment of FASB SFAS No. 123, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation and amends the disclosure requirements of SFAS No. 123. The following table illustrates the effect on net loss and loss per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation:
The pro-forma disclosure shown above was calculated for all options using the Black-Scholes option-pricing model with the following assumptions:
Net Loss Per Common Share
Net loss per common share for the twelve months ended December 31, 2004, 2003 and 2002, respectively, are based on the weighted average number of shares of common stock outstanding during the periods. Basic and diluted loss per share are identical for all periods presented as potentially dilutive securities, including options, warrants and convertible preferred stock, aggregating 11.4 million, 18.0 million and 16.7 million in 2004, 2003 and 2002, respectively, have been excluded from the calculation of the diluted net loss per common share because the inclusion of such securities would be antidilutive.
Recently Issued Accounting Standards
In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment, which will require compensation costs related to share-based payment transactions to be recognized in the financial statements. With limited exceptions, the amount of compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. In addition, liability awards will be remeasured each reporting period. Compensation cost will be recognized over the period that an employee provides service in exchange for the award. SFAS No. 123(R) replaces FASB SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. The Company will adopt the provisions of FAS No. 123R in 2005. The Company is evaluating the impact that the adoption of this standard will have on its results of operations, financial position or cash flows.
In December 2004, the FASB issued SFAS No. 153, Exchanges of Non-monetary Assets, an amendment of APB Opinion No. 29. The Company does not expect that the adoption of this statement will have any impact on the Company’s results of operations, financial position or cash flows.
In November 2004, the FASB issued SFAS No. 151, Inventory Costs, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material. As the Company uses third-party manufacturers and does not manufacture its own products, the Company does not expect that the adoption of this statement will have a material impact on its results of operations, financial position or cash flows.
3. Marketable Securities
The carrying amounts of the company’s marketable securities, which primarily consist of government securities, approximate fair value due to the short-term nature of these instruments. The fair value of marketable securities is as follows ($ thousands):
The fair value of marketable securities by contractual maturity, is as follows ($ thousands):
The fair value of each marketable security has been compared to its cost and therefore, an unrealized loss of approximately $32 thousand has been recognized in accumulated other comprehensive loss at December 31, 2004.
4. Collaborative Agreement
In April 2002, the Company entered into a development and commercialization agreement (“Collaborative Agreement”) with Aventis. Under the terms of the Collaborative Agreement, Genta and Aventis would jointly develop and commercialize Genasense® in the U.S, and Aventis would have exclusive development and marketing rights to the compound in all countries outside the U.S. Under the Collaborative Agreement Aventis paid 75% of the U.S. NDA-directed development costs incurred by either Genta or Aventis and 100% of all other development, marketing, and sales costs incurred within the U.S. and elsewhere as subject to the Collaborative Agreement. An analysis of expenses reimbursed under the Collaborative Agreement follows ($ thousands):
5. Accounts Receivable-Net
Once Aventis provided notice of termination of the Collaborative Agreement, all payments otherwise due from Aventis are applied against any balance on the Line of Credit until the Line of Credit is repaid. Accordingly, the Accounts receivable-net balance at December 31, 2004 does not include any reimbursement from Aventis, as reimbursement due from Aventis has been applied to the Line of Credit.
At December 31, 2003, the balance of Accounts receivable-net of $16.7 million was comprised of $15.5 million in net expense reimbursements due from Aventis for various third-party costs, internal costs of scientific and technical personnel and Genasense® drug supply costs and $1.2 million related to the sale of Ganite®, net of allowances of $0.1 million.
6. Inventory
Inventories are stated at the lower of cost or market with cost being determined using the first-in, first-out (FIFO) method. Inventories consisted of the following ($ thousands):
In May 2004, the Company eliminated its sales force and significantly reduced its marketing support for Ganite®. After evaluating various options, the Company decided during the third quarter to continue selective marketing support of the product. During 2004, the Company recorded provisions for excess Ganite® inventory of $1.4 million.
7. Property and Equipment, Net
Property and equipment is comprised of the following ($ thousands):
In August 2004, the Company completed the closure of its research facility in Salt Lake City, Utah, sold all related equipment and assigned its lease on this facility to another company. Additionally, the Company disposed of excess equipment at corporate headquarters. As a result of these actions, the Company recorded a loss of approximately $1.3 million.
8. Notes Receivable
At December 31, 2003, the Company had a note receivable of $3.5 million relating to advance financing provided to Avecia Biotechnology, Inc. (“Avecia”) for facility expansion, which was to be repaid with interest through future payments determined as a function of future drug substance purchases by Genta. Based on negotiations between the two companies, amounts owed to the Company under this note were offset against amounts payable to Avecia, resulting in a non-cash reduction to Note receivable and Accounts payable and accrued expenses of approximately $4.2 million.
9. Intangibles
Intangible assets consist of the following ($ thousands):
The remaining intangible asset amount will be fully amortized in 2005.
10. Prepaid Royalties
In December 2000, the Company recorded $1.3 million as the fair value for its commitment to issue 162,338 shares of common stock to a major university as consideration for an amendment to a license agreement initially executed on August 1, 1991 related to antisense technology licensed from the university. The amendment provided for a reduction in the royalty percentage rate to be paid to the university based on the volume of sales of the Company’s products containing the antisense technology licensed from such university. These shares were issued in the first quarter of 2001. The Company will amortize the prepaid royalties upon the commercialization of Genasense® through the term of the arrangement, which expires twelve years from the date of first commercial sale.
11. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses is comprised of the following ($ thousands):
12. Deferred Revenues
As of December 31, 2004, the Company had recorded $26.2 million, net of amortization in current deferred revenues relating to the initial $10.0 million licensing fee and $40.0 million development funding received from Aventis under the Collaborative Agreement. On November 8, 2004, Aventis gave notice to Genta that it was terminating the Collaborative Agreement. Under the terms of the agreement, Aventis will continue to fund ongoing development activities through May 8, 2005. As a result of the notice of termination of the agreements with Aventis, the Company has determined that the period over which the remaining deferred revenue should be recognized will be through May 8, 2005. In accordance with EITF No. 00-21 and SAB No. 104, the Company has reclassified the remaining deferred revenue as current and will recognize such revenue through May 8, 2005.
13. Short Term Debt
This revolving debt was issued in connection with an amendment, dated March 14, 2003, to the Collaborative Agreement that established a line of credit related to the development, manufacturing and commercialization of Genasense® (“Line of Credit”). The debt was considered an advance against both past and future costs and the borrowing base was adjusted on a monthly basis. Prior to June 30, 2004 the Line of Credit was classified as long-term debt and beginning June 30, 2004, it was classified as short-term debt. During 2004, as a result of certain non-cash transactions, the Company reduced amounts owed under the Line of Credit by $27.7 million. As a result of Aventis’ purchase commitments to Genta, in September the Company supplied $15.5 million of vialed Genasense® drug product and Genasense® bulk drug substance to Aventis. This amount is included in the Company’s Consolidated Statement of Operations as Aventis reimbursement. The companies agreed to offset amounts owed under the Line of Credit by $14.8 million and accrued interest on the Line of Credit by $0.7 million. With the Aventis notice of termination, Genta cannot borrow additional funds and the Line of Credit must be repaid no later than May 8, 2005. All payments otherwise due to Genta are applied against any balance on the Line of Credit until the Line of Credit is repaid. The Company expects that a substantial portion of the $7.3 million outstanding on the Line of Credit will be repaid through the application of reimbursements. In 2004, $12.9 million of reimbursement due from Aventis was applied to the balance of the Line of Credit.
The terms of the Line of Credit provide for a favorable interest rate of the three-month London Interbank Offered Rate plus .35% per annum, compounded quarterly, which is set two days prior to the first day of each calendar quarter. As security for the repayment of the Line of Credit, Genta has granted Aventis a security interest in all of its rights to payments under the Collaborative Agreement, as well as all inventory related to Genasense®.
14. Convertible Debt
On November 8, 2004, Aventis gave notice to Genta that it was terminating its Collaborative Agreement with the Company. Under the terms of the Agreement, Aventis has forgiven the $10.0 million of convertible debt, along with its accrued interest, issued to them in connection with the collaboration, resulting in a gain on extinguishment of debt of $11.5 million.
15. Income Taxes
Significant components of the Company’s deferred tax assets as of December 31, 2004 and 2003 and related valuation reserves are presented below ($ thousands):
A full valuation allowance has been provided at December 31, 2004 and 2003, respectively, to reserve for deferred tax assets, as it appears more likely than not that net deferred tax assets will not be realized.
New Jersey has enacted legislation permitting certain corporations located in New Jersey to sell state tax loss carryforwards and state research and development credits. During 2004, New Jersey allowed the Company to sell $11.6 million of its net operating loss carryforwards and the Company received $0.9 million from the sale, which was recognized as Income tax benefit.
If still available under New Jersey law, the Company will attempt to sell its tax loss carryforwards in 2005. The Company can not be assured that the New Jersey program will continue next year, nor can the Company estimate what percentage of its saleable tax benefits New Jersey will permit it to sell, how much money will be received in connection with the sale, or if the Company will be able to find a buyer for its tax benefits.
At December 31, 2004, the Company has federal and state net operating loss carryforwards of approximately $169.8 million and $171.9 million, respectively. The federal tax loss carryforwards began expiring in 2003. The Company also has federal research and development credit carryforwards of $96.0 million, which began expiring in 2003.
16. Operating Leases
At December 31, 2004 and December 31, 2003, the Company maintained $1.6 million and $1.5 million, respectively, in restricted cash balances with financial institutions related to lease obligations on its corporate facilities and leased fleet vehicles. Such restricted cash balances collateralize letters of credit issued by the financial institutions in favor of the Company’s landlord with respect to corporate facilities and to a financial institution with respect to leased fleet vehicles.
Future minimum obligations under operating leases at December 31, 2004 are as follows ($ thousands):
Annual rent expense incurred by the Company in 2004 and 2003 was $2.5 million and $2.2 million, respectively.
17. Stockholders’ Equity
Common Stock
In August 2003, the Company issued 1.03 million shares of its common stock, with a fair value of $13.0 million, to Salus stockholders, in connection with its purchase of Salus Therapeutics in exchange for all of the outstanding shares of Salus preferred stock.
In March 2004, the Board of Directors approved an amendment to increase the authorized common stock to 150.0 million shares from 120.0 million. In June 2004, shareholders approved this amendment at the Annual Meeting of Stockholders.
In December 2004, the Company issued 15.0 million shares of its common stock through a direct placement with two institutions and received net proceeds of approximately $21.6 million.
Preferred Stock
The Company has authorized 5.0 million shares of preferred stock and has issued and outstanding 9,700 shares of Series A Convertible Preferred Stock as of December 31, 2004.
Series A Preferred Stock
Each share of Series A Preferred Stock is immediately convertible into shares of the Company’s common stock, at a rate determined by dividing the aggregate liquidation preference of the Series A Preferred Stock by the conversion price. The conversion price is subject to adjustment for antidilution. As of December 31, 2004 and 2003, each share of Series A Preferred Stock was convertible into 8.4274 and 7.3967 shares of common stock, respectively.
In the event of a liquidation of the Company, the holders of the Series A Preferred Stock are entitled to a liquidation preference equal to $50 per share, or $0.5 million at December 31, 2004.
In February 2004, substantially all of the Series A Preferred Stock was converted into shares of the Company’s Common Stock.
Warrants
Summary information with respect to outstanding common stock warrants at December 31, 2004 is presented below:
In June 1997, in connection with a private equity placement, a series of warrants were issued. The remaining outstanding warrants are exercisable and can be converted into approximately 26 thousand common shares; they expire in December 2007.
In August 1999, the Company acquired Androgenics Technologies, Inc. (“Androgenics”) and as part of that acquisition, issued a series of warrants. The outstanding warrants that are exercisable can be converted into 80 thousand common shares; they expire in August 2006.
In December 1999, in connection with a private equity placement, a series of warrants were issued. The remaining outstanding warrants are exercisable and can be converted into a total of approximately 234 thousand common shares. These warrants expire in May 2005 or in June 2007.
In September 2000, in connection with a private equity placement, a series of warrants were issued. The remaining outstanding warrants are exercisable and can be converted into approximately 11 thousand common shares; they expire in September 2005.
Common Stock Reserved
At December 31, 2004, an aggregate of 11.5 million shares of common stock were reserved for the conversion of preferred stock and the exercise of outstanding options and warrants.
18. Employee Benefit Plans
Plan
Pursuant to the Company’s 1998 Stock Incentive Plan as amended (the “1998 Plan”), 18.5 million shares have been provided for the grant of stock options to employees, directors, consultants and advisors of the Company. In March 2004, the Board of Directors approved an amendment to increase the total number of shares of common stock authorized for issuance under the 1998 Plan to 18.5 million shares from 17.0 million. In June 2004, the stockholders approved this amendment at the Annual Meeting of Stockholders. Options may be designated as incentive stock options or non-statutory stock options; however, incentive stock options may be granted only to employees of the Company. Options under the 1998 Plan have a term of up to ten years and must be granted at not less than the fair market value, or 85% of fair market value for non-statutory options, on the date of the grant. Common stock sold and options granted pursuant to the 1998 Plan generally vest over a period of four years.
During 1999 and 2000, the Company granted to certain key employees, 6,188,250 and 325,000 options, respectively. Such options were granted with exercise prices below the market value of the Company’s common stock on the date of the grant. Accordingly, the Company recorded deferred compensation of $2.0 million and $0.1 million in 1999 and 2000 attributable to the intrinsic value of these options and amortized $0.2 million, $0.2 million and $0.7 million as non-cash equity related compensation expense in 2004, 2003 and 2002, respectively.
In 2001, the Company granted options to purchase common stock to members of Genta’s Scientific Advisory Board, for which the Company recorded a total of $0.7 million in deferred compensation, of which $0.2 million and $0.3 million was amortized as non-cash equity related compensation expense in 2003 and 2002, respectively.
The Company’s employees were granted 1,442,000, 2,468,300 and 1,274,400 stock options with exercise prices equal to the fair value on the date of grant in 2004, 2003 and 2002, respectively. Summary information with respect to the Company’s 1998 Stock Plan is as follows:
At December 31, 2004, options to purchase 5,570,729 shares of common stock were exercisable at a weighted average exercise price of approximately $4.51 per share and 3,851,323 shares of common stock were available for grant or sale under the Plan.
Non-Employee Directors’ Plan
Pursuant to the Company’s Non-Employee Directors’ 1998 Stock Plan as amended, (the “Directors’ Plan”) 3.3 million shares have been provided for the grant of stock options to non-employee members of the Board of Directors. Options under the Directors’ Plan have a term of up to ten years and must be granted at not less than the fair market value on the date of grant. As amended and approved, each director shall be granted 24,000 options upon election to the Board of Directors. Each option granted shall become exercisable over a three-year period. In addition, annually, each director receives 20,000 options at the first Board of Directors meeting they attend. Each option granted shall become exercisable in full on the date of grant.
In June 2004, the stockholders approved an amendment to the 1998 Directors’ Plan at the Annual Meeting of Stockholders, whereby the Lead Director and Non-Employee Chairperson of a Committee of the Board of Directors are granted an annual option to purchase 5,000 shares of common stock. Each option granted shall become exercisable in full on the date of grant.
The Company’s directors were granted stock options to purchase a total of 160,000, 184,000 and 174,667 shares of common stock in 2004, 2003 and 2002, respectively, with an exercise price equal to the fair market value of the common stock on the date of grant.
Summary information with respect to the Company’s 1998 Directors’ Plan is as follows:
At December 31, 2004, options granted under the Directors’ Plan to purchase 992,335 shares of common stock were exercisable at a weighted average exercise price of approximately $7.04 per share and 322,877 shares of common stock were available for grant or sale under the Directors’ Plan.
In 2002, a combined total of 1,449,067 options were granted pursuant to the 1998 Plan and 1998 Directors Plan at fair market value with a weighted average grant date fair value of $11.81 per share. In 2003, a combined total of 2,656,300 options were granted pursuant to the 1998 Plan and 1998 Directors Plan at fair market value with a weighted average grant date fair value of $9.72 per share. In 2004, a total of 1,602,000 options were granted pursuant to the 1998 Plan and the 1998 Directors Plan at fair market value with a weighted average grant date fair value of $7.62 per share. No options were granted below fair market value in 2004, 2003 or 2002.
An analysis of all options outstanding as of December 31, 2004 is presented below:
Employee Savings Plan
In January 2001, the Company initiated sponsorship of the Genta Incorporated Savings and Retirement Plan, a defined contribution plan under Section 401(k) of the Internal Revenue Code. The Company’s matching contribution to the Plan was $0.7 million, $0.6 million and $0.3 million for 2004, 2003 and 2002, respectively.
19. Commitments and Contingencies
Litigation and Potential Claims
In 2004, numerous complaints were filed in the United States District Court for the District of New Jersey against Genta and certain of our principal officers on behalf of purported classes of our shareholders who purchased our securities during several class periods. The complaints have been consolidated into a single action and allege that the Company and certain of its principal officers violated the federal securities laws by issuing materially false and misleading statements regarding Genasense® for the treatment of melanoma that had the effect of artificially inflating the market price of our securities. The shareholder class action complaint in the various actions seeks monetary damages in an unspecified amount and recovery of plaintiffs’ costs and attorneys’ fees. In addition, three shareholder derivative actions have been filed against the directors and certain officers of Genta in New Jersey State and Federal courts. Based on facts substantially similar to those asserted in the shareholder class actions, the derivative plaintiffs claim that defendants have breached their fiduciary duties to the shareholders and other violations of New Jersey law. The Company believes these litigations are without merit and will vigorously defend against these suits.
Under Genta’s directors and officers’ liability insurance coverage, the Company is liable for the first $1.0 million of legal expenses. As it is reasonably certain that the Company will incur these expenses, $1.0 million was recorded in June 2004.
Management does not believe that this litigation will have a material adverse impact on the Company’s financial results or liquidity.
Contractual Obligations
Future contractual obligations at December 31, 2004 are as follows ($ thousands):
(1) Consists of amounts outstanding on the line of credit with Aventis, which are due on May 8, 2005.
Not included in the above table are any Genasense® bulk drug purchase obligations to Avecia per the terms of the Manufacturing and Supply Agreement entered into between Avecia and Genta in December 2002. The agreement calls for Genta to purchase a percentage of our global Genasense® bulk drug requirements from Avecia during the term of the agreement. Due to the uncertainties regarding the timing of any Genasense® approval and sales/volume projections, specific obligation amounts cannot be estimated at this time. Due to past purchases of Genasense® bulk drug substance, the Company has access to sufficient drug for its current needs.
20. Supplemental Disclosure of Cash Flows Information and Non-cash Investing and Financing Activities
During 2004, as a result of certain non-cash transactions, the Company reduced amounts owed under the Line of Credit by $27.7 million. In September the Company supplied $15.5 million of vialed Genasense® drug product and Genasense® bulk drug substance to Aventis. This amount is included in the Company’s Consolidated Statement of Operations as Aventis reimbursement. The companies agreed to offset amounts owed under the Line of Credit by $14.8 million and accrued interest on the Line of Credit by $0.7 million. With the Aventis notice of termination, Genta cannot borrow additional funds and the Line of Credit must be repaid no later than May 8, 2005. All payments otherwise due to Genta are applied against any balance on the Line of Credit until the Line of Credit is repaid. In 2004, $12.9 million of reimbursement due to Genta was applied to the balance of the Line of Credit.
Based on negotiations between the Company and Avecia, amounts owed to Genta under a note receivable from Avecia were offset against amounts payable to Avecia, resulting in a non-cash reduction to Note receivable and Accounts payable and accrued expenses of approximately $4.2 million.
No interest was paid for the twelve months ended December 31, 2004, 2003, and 2002, respectively.
21. Selected Quarterly Financial Data (Unaudited)
The Company has experienced significant quarterly fluctuations in operating results and it expects that these fluctuations will continue.
* Net (loss) income per common share is calculated independently for each quarter and the full year based upon respective average shares outstanding. Therefore, the sum of the quarterly amounts may not equal the annual amounts reported
For the quarter ended December 31, 2004 the Company reported income of $14.6 million or $.18 per share. With the Aventis notice of termination, Aventis has forgiven the $10.0 million of convertible debt issued to them in connection with the collaboration, resulting in a gain on extinguishment of debt of $11.5 million. In addition, the Aventis notice of termination resulted in the acceleration of the recognition of previously deferred revenue over a six-month period beginning November 9, 2004. As a result, revenue recognized in the quarter ended December 31, 2004 increased $9.9 million.
Item 9.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Item 9A.
Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
As required by Rule 13a-15(b), Genta’s Chief Executive Officer and Chief Financial Officer conducted an evaluation as of the end of the period covered by this report of the effectiveness of the Company’s “disclosure controls and procedures” (as defined in Exchange Act Rule 13a-15(e)). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were operating effectively as of the end of the period covered by this report.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control - Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2004. Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2004 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included herein.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rule 13a-15 that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Genta Incorporated:
We have audited management’s assessment, included in Item 9A Controls and Procedures - Management’s Report on Internal Control Over Financial Reporting, that Genta Incorporated and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of December 31, 2004 based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2004 of the Company and our report dated March 14, 2005 expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the termination of the Collaborative Agreement between Aventis and the Company.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
March 14, 2005
Item 9B.
Item 9B.
Other Information
None.
PART III
Item 10.
Item 10.
Directors and Executive Officers of the Registrant
The information required in this item is incorporated by reference from the Company’s definitive proxy statement to be filed not later than April 30, 2005 pursuant to Regulation 14A of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (“Regulation 14A”).
The information required in this item is incorporated by reference from the Company’s definitive proxy statement to be filed not later than April 30, 2005 pursuant to Regulation 14A.
Item 12.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required in this item is incorporated by reference from the Company’s definitive proxy statement to be filed not later than April 30, 2005 pursuant to Regulation 14A.
Item 13.
Item 13.
Certain Relationships and Related Transactions
The information required in this item is incorporated by reference from the Company’s definitive proxy statement to be filed not later than April 30, 2005 pursuant to Regulation 14A.
Item 14.
Item 14.
Principal Accounting Fees and Services
The information required in this item is incorporated by reference from the Company’s definitive proxy statement to be filed not later than April 30, 2005 pursuant to Regulation 14A.
PART IV
Item 15.
Item 15.
Exhibits and Financial Statement Schedules.
Exhibit
Number
Description of Document
3.1.a
Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3(i).1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1995, Commission File No. 0-19635)
3.1.b
Certificate of Designations of Series D Convertible Preferred Stock of the Company (incorporated by reference to Exhibit 3(i) to the Company’s Current Report on Form 8-K filed on February 28, 1997, Commission File No. 0-19635)
3.1.c
Certificate of Amendment of Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3(i).3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 0-19635)
3.1.d
Amended Certificate of Designations of Series D Convertible Preferred Stock of the Company (incorporated by reference to Exhibit 3(i).4 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 0-19635)
3.1.e
Certificate of Increase of Series D Convertible Preferred Stock of the Company (incorporated by reference to Exhibit 3(i).5 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 0-19635)
3.1.f
Certificate of Amendment of Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3(i).4 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998, Commission File No. 0-19635)
3.1.g
Certificate of Amendment of Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3(i).3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998, Commission File No. 0-19635)
3.1.h
Certificate of Amendment of Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3(i).8 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 0-19635)
3.1.i
Certificate of Amendment of Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1.i to the Company’s Registration Statement on Form S-1, Commission File No. 333-110238)
3.1.j
Certificate of Amendment of Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1.j to the Company’s Registration Statement on Form S-1, Commission File No. 333-110238)
3.1.k
Certificate of Amendment of Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1.k to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, Commission File No. 0-19635
3.2
Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, Commission File No. 0-19635)
4.1
Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1, Commission File No. 333-110238)
10.1
Amended and Restated 1991 Stock Plan of Genta Incorporated (incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-8, Reg. No. 333-101022)
10.2
Non-Employee Directors’ 1998 Stock Option Plan, as amended and restated (incorporated by reference to Exhibit 99.B to the Company’s Definitive Proxy Statement on Schedule 14A filed on April 30, 2004, Commission File No. 0-19635)
10.3
Stock Incentive Plan, as amended and restated, effective March 19, 2004 (incorporated by reference to Exhibit 99.A to the Company’s Definitive Proxy Statement on Schedule 14A filed on April 30, 2004, Commission File No. 0-19635)
10.4
Form of Indemnification Agreement entered into between the Company and its directors and officers (incorporated by reference to Exhibit 10.7 to the Company’s Registration Statement on Form S-1, Commission File No. 0-19635)
Exhibit
Number
Description of Document
10.5*
Development, License and Supply Agreement dated February 2, 1989 between the Company and Gen-Probe Incorporated (incorporated by reference to Exhibit 10.10 to the Company’s Registration Statement on Form S-1, Commission File No. 0-19635)
10.6
Asset Purchase Agreement, dated as of March 19, 1999, among JBL Acquisition Corp., JBL Scientific Incorporated and the Company (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report filed on Form 10-Q for the quarter ended March 31, 1999, Commission File No. 0-19635)
10.7
Warrant Agreement, dated as of December 23, 1999, among the Company, ChaseMellon Shareholder Services, L.L.C., as warrant agent, and Paramount Capital, Inc. (incorporated by reference to Exhibit 10.67 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 0-19635)
10.8
Employment Letter Agreement, dated as of October 28, 1999, from the Company to Raymond P. Warrell, Jr., M.D. (incorporated by reference to Exhibit 10.70 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 0-19635)
10.9
Stock Option Agreement, dated as of October 28, 1999, between the Company and Raymond P. Warrell, Jr., M.D. (incorporated by reference to Exhibit 10.71 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 0-19635)
10.10
Letter Agreement, dated March 4, 1999, from SkyePharma Plc to the Company (incorporated by reference to Exhibit 10.72 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 0-19635)
10.11
Subscription Agreement executed in connection with the November 26, 2001 sale of common stock to Franklin Small-Mid Cap Growth Fund, Franklin Biotechnology Discovery Fund, and SF Capital Partners Ltd., and the November 30, 2001 sale of common stock to SF Capital Partners Ltd. (incorporated by reference to Exhibit 10.73 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, Commission File No. 0-19635)
10.12
Employment Letter Agreement, dated as of March 27, 2001, from the Company to Loretta M. Itri, M.D. (incorporated by reference to Exhibit 10.74 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, Commission File No. 0-19635)
10.13
Agreement of Lease dated June 28, 2000 between The Connell Company and the Company (incorporated by reference to Exhibit 10.76 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, Commission File No. 0-19635)
10.13A
Amendment of Lease, dated June 19, 2002 between The Connell Company and the Company (incorporated by reference to Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, Commission File No. 0-19635)
10.14
Agreement of Sublease dated August 13, 2001 between Expanets, Inc. and the Company (incorporated by reference to Exhibit 10.77 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, Commission File No. 0-19635)
10.15*
U.S. Commercialization Agreement dated April 26, 2002, by and between Genta Incorporated and Aventis Pharmaceuticals Inc.
10.15A*
Amendment No. 1 dated March 14, 2003 to the U.S. Commercialization Agreement between Genta Incorporated and Aventis Pharmaceuticals Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003).
10.16*
Ex-U.S. Commercialization Agreement, dated April 26, 2002, by and between Genta Incorporated and Garliston Limited
10.17*
Global Supply Agreement, dated April 26, 2002, by and among Genta Incorporated, Aventis Pharmaceuticals Inc. and Garliston Limited (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, Commission File No. 0-19635)
10.18*
Securities Purchase Agreement, dated April 26, 2002, by and between Genta Incorporated and Garliston Limited (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, Commission File No. 0-19635)
Exhibit
Number
Description of Document
10.19
Standstill and Voting Agreement, dated April 26, 2002, by and between Genta Incorporated and Garliston Limited (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, Commission File No. 0-19635)
10.20
Registration Rights Agreement, dated April 26, 2002, by and between Genta Incorporated and Garliston Limited (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, Commission File No. 0-19635)
10.21
Convertible Note Purchase Agreement, dated April 26, 2002, by and between Genta Incorporated and Garliston Limited (incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, Commission File No. 0-19635)
10.22*
5.63% Convertible Promissory Note, due April 26, 2009 (incorporated by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, Commission File No. 0-19635)
10.23*
Subordination Agreement, dated April 26, 2002, by and between Genta Incorporated and Garliston Limited (incorporated by reference to Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, Commission File No. 0-19635)
10.24*
Manufacture and Supply Agreement, dated December 20, 2002, between Genta Incorporated and Avecia Biotechnology Inc. (incorporated by reference to Exhibit 10.88 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002, Commission File No. 0-19635)
10.25
Employment Agreement, dated as of December 1, 2002, between the Company and Raymond P. Warrell, Jr., M.D. (incorporated by reference to Exhibit 10.89 to the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2001, Commission File No. 0-19635)
10.26
Employment Agreement, dated as of August 5, 2003, between the Company and Loretta M. Itri, M.D. (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, Commission File No. 0-19635)
10.27*
License Agreement dated August 1, 1991, between Genta Incorporated and the Trustees of the University of Pennsylvania (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on October 28, 2003, Commission File No. 0-19635)
10.27A*
Amendment to License Agreement, dated December 19, 2000, between Genta Incorporated and the Trustees of the University of Pennsylvania (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed on October 28, 2003, Commission File No. 0-19635)
10.27AA*
Second Amendment to License Agreement, dated October 22, 2003, between Genta Incorporated and the Trustees of the University of Pennsylvania (incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed on October 28, 2003, Commission File No. 0-19635)
10.28*
Settlement Agreement and Release, dated October 22, 2003, between Genta Incorporated and the Trustees of the University of Pennsylvania (incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K filed on October 28, 2003, Commission File No. 0-19635)
Subsidiaries of the Registrant
23.1
Consent of Deloitte & Touche LLP
31.1
Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*
The Company has been granted confidential treatment of certain portions of this exhibit.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 14th day of March 2005.
GENTA INCORPORATED
/s/ RAYMOND P. WARRELL, JR., M.D.
Raymond P. Warrell, Jr., M.D.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Capacity Date
/s/ RAYMOND P. WARRELL, JR., M.D. Chairman and Chief Executive Officer March 14, 2005
Raymond P. Warrell, Jr., M.D.
/s/ WILLIAM P. KEANE Vice President, Chief Financial Officer
and Corporate Secretary (Principal
Accounting Officer) March 14, 2005
William P. Keane
/s/ JEROME E. GROOPMAN, M.D. Director March 14, 2005
Jerome E. Groopman, M.D.
/s/ BETSY MCCAUGHEY Director March 14, 2005
Betsy McCaughey, Ph.D.
/s/ PETER TATTLE Director March 14, 2005
Peter T. Tattle
/s/ DANIEL D. VON HOFF, M.D. Director March 14, 2005
Daniel D. Von Hoff, M.D.
/s/ HARLAN J. WAKOFF Director March 14, 2005
Harlan J. Wakoff
/s/ DOUGLAS G. WATSON Director March 14, 2005
Douglas G. Watson
/s/ MICHAEL S. WEISS Director March 14, 2004
Michael S. Weiss
Exhibit
Number
Description of Document
Sequentially
Numbered Pages
3.1.a
Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3(i).1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1995, Commission File No. 0-19635)
3.1.b
Certificate of Designations of Series D Convertible Preferred Stock of the Company (incorporated by reference to Exhibit 3(i) to the Company’s Current Report on Form 8-K filed on February 28, 1997, Commission File No. 0-19635)
3.1.c
Certificate of Amendment of Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3(i).3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 0-19635)
3.1.d
Amended Certificate of Designations of Series D Convertible Preferred Stock of the Company (incorporated by reference to Exhibit 3(i).4 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 0-19635)
3.1.e
Certificate of Increase of Series D Convertible Preferred Stock of the Company (incorporated by reference to Exhibit 3(i).5 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 0-19635)
3.1.f
Certificate of Amendment of Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3(i).4 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998, Commission File No. 0-19635)
3.1.g
Certificate of Amendment of Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3(i).3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998, Commission File No. 0-19635)
3.1.h
Certificate of Amendment of Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3(i).8 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 0-19635)
3.1.i
Certificate of Amendment of Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1.i to the Company’s Registration Statement on Form S-1, Commission File No. 333-110238)
3.1.j
Certificate of Amendment of Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1.j to the Company’s Registration Statement on Form S-1, Commission File No. 333-110238)
3.1.k
Certificate of Amendment of Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1.k to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, Commission File No. 0-19635
3.2
Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, Commission File No. 0-19635)
4.1
Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1, Commission File No. 333-110238)
10.1
Amended and Restated 1991 Stock Plan of Genta Incorporated (incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-8, Reg. No. 333-101022)
10.2
Non-Employee Directors’ 1998 Stock Option Plan, as amended and restated (incorporated by reference to Exhibit 99.B to the Company’s Definitive Proxy Statement on Schedule 14A filed on April 30, 2004, Commission File No. 0-19635)
Exhibit
Number
Description of Document
Sequentially
Numbered Pages
10.3
Stock Incentive Plan, as amended and restated, effective March 19, 2004 (incorporated by reference to Exhibit 99.A to the Company’s Definitive Proxy Statement on Schedule 14A filed on April 30, 2004, Commission File No. 0-19635)
10.4
Form of Indemnification Agreement entered into between the Company and its directors and officers (incorporated by reference to Exhibit 10.7 to the Company’s Registration Statement on Form S-1, Commission File No. 0-19635)
10.5*
Development, License and Supply Agreement dated February 2, 1989 between the Company and Gen-Probe Incorporated (incorporated by reference to Exhibit 10.10 to the Company’s Registration Statement on Form S-1, Commission File No. 0-19635)
10.6
Asset Purchase Agreement, dated as of March 19, 1999, among JBL Acquisition Corp., JBL Scientific Incorporated and the Company (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report filed on Form 10-Q for the quarter ended March 31, 1999, Commission File No. 0-19635)
10.7
Warrant Agreement, dated as of December 23, 1999, among the Company, ChaseMellon Shareholder Services, L.L.C., as warrant agent, and Paramount Capital, Inc. (incorporated by reference to Exhibit 10.67 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 0-19635)
10.8
Employment Letter Agreement, dated as of October 28, 1999, from the Company to Raymond P. Warrell, Jr., M.D. (incorporated by reference to Exhibit 10.70 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 0-19635)
10.9
Stock Option Agreement, dated as of October 28, 1999, between the Company and Raymond P. Warrell, Jr., M.D. (incorporated by reference to Exhibit 10.71 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 0-19635)
10.10
Letter Agreement, dated March 4, 1999, from SkyePharma Plc to the Company (incorporated by reference to Exhibit 10.72 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 0-19635)
10.11
Subscription Agreement executed in connection with the November 26, 2001 sale of common stock to Franklin Small-Mid Cap Growth Fund, Franklin Biotechnology Discovery Fund, and SF Capital Partners Ltd., and the November 30, 2001 sale of common stock to SF Capital Partners Ltd. (incorporated by reference to Exhibit 10.73 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, Commission File No. 0-19635)
10.12
Employment Letter Agreement, dated as of March 27, 2001, from the Company to Loretta M. Itri, M.D. (incorporated by reference to Exhibit 10.74 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, Commission File No. 0-19635)
10.13
Agreement of Lease dated June 28, 2000 between The Connell Company and the Company (incorporated by reference to Exhibit 10.76 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, Commission File No. 0-19635)
Exhibit
Number
Description of Document
Sequentially
Numbered Pages
10.13A
Amendment of Lease, dated June 19, 2002 between The Connell Company and the Company (incorporated by reference to Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, Commission File No. 0-19635)
10.14
Agreement of Sublease dated August 13, 2001 between Expanets, Inc. and the Company (incorporated by reference to Exhibit 10.77 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, Commission File No. 0-19635)
10.15*
U.S. Commercialization Agreement dated April 26, 2002, by and between Genta Incorporated and Aventis Pharmaceuticals Inc.
10.15A*
Amendment No. 1 dated March 14, 2003 to the U.S. Commercialization Agreement between Genta Incorporated and Aventis Pharmaceuticals Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003).
10.16*
Ex-U.S. Commercialization Agreement, dated April 26, 2002, by and between Genta Incorporated and Garliston Limited (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, Commission File No. 0-19635)
10.17*
Global Supply Agreement, dated April 26, 2002, by and among Genta Incorporated, Aventis Pharmaceuticals Inc. and Garliston Limited (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, Commission File No. 0-19635)
10.18*
Securities Purchase Agreement, dated April 26, 2002, by and between Genta Incorporated and Garliston Limited (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, Commission File No. 0-19635)
10.19
Standstill and Voting Agreement, dated April 26, 2002, by and between Genta Incorporated and Garliston Limited (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, Commission File No. 0-19635)
10.20
Registration Rights Agreement, dated April 26, 2002, by and between Genta Incorporated and Garliston Limited (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, Commission File No. 0-19635)
10.21
Convertible Note Purchase Agreement, dated April 26, 2002, by and between Genta Incorporated and Garliston Limited (incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, Commission File No. 0-19635)
10.22*
5.63% Convertible Promissory Note, due April 26, 2009 (incorporated by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, Commission File No. 0-19635)
10.23*
Subordination Agreement, dated April 26, 2002, by and between Genta Incorporated and Garliston Limited (incorporated by reference to Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, Commission File No. 0-19635)
10.24*
Manufacture and Supply Agreement, dated December 20, 2002, between Genta Incorporated and Avecia Biotechnology Inc. (incorporated by reference to Exhibit 10.88 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002, Commission File No. 0-19635)
10.25
Employment Agreement, dated as of December 1, 2002, between the Company and Raymond P. Warrell, Jr., M.D. (incorporated by reference to Exhibit 10.89 to the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2001, Commission File No. 0-19635)
Exhibit
Number
Description of Document
Sequentially
Numbered Pages
10.26
Employment Agreement, dated as of August 5, 2003, between the Company and Loretta M. Itri, M.D. (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, Commission File No. 0-19635)
10.27*
License Agreement dated August 1, 1991, between Genta Incorporated and the Trustees of the University of Pennsylvania (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on October 28, 2003, Commission File No. 0-19635)
10.27A*
Amendment to License Agreement, dated December 19, 2000, between Genta Incorporated and the Trustees of the University of Pennsylvania (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed on October 28, 2003, Commission File No. 0-19635)
10.27AA*
Second Amendment to License Agreement, dated October 22, 2003, between Genta Incorporated and the Trustees of the University of Pennsylvania (incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed on October 28, 2003, Commission File No. 0-19635)
10.28
Settlement Agreement and Release, dated October 22, 2003, between Genta Incorporated and the Trustees of the University of Pennsylvania (incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K filed on October 28, 2003, Commission File No. 0-19635)
Subsidiaries of the Registrant
23.1
Consent of Deloitte & Touche LLP
31.1
Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002