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| VXGN.OB > SEC Filings for VXGN.OB > Form 10-Q on 4-May-2009 | All Recent SEC Filings |
4-May-2009
Quarterly Report
Through March 31, 2007, our principal source of revenue was the U.S. government,
principally the National Institutes of Health, or NIH, and related entities.
From April 2007 to April 2008, our principal source of revenue was from services
provided to Celltrion, Inc., or Celltrion, a company developing and operating a
mammalian cell culture biomanufacturing facility in the Republic of Korea.
We discontinued clinical development of our anthrax vaccine candidate, rPA102,
after HHS terminated our contract to provide recombinant anthrax vaccine to the
U.S. government Strategic National Stockpile for civilian defense, or SNS
Contract in December 2006. In addition, in June 2007 we terminated our contract
with the Chemo-Sero-Therapeutic Research Institute of Japan, or Kaketsuken, to
develop a smallpox vaccine. We had previously devoted substantially all of our
research, development and clinical efforts and financial resources toward the
development of rPA102, and we have no product candidates in clinical or
preclinical development. In connection with the termination of our clinical
development of rPA102, we announced restructuring activities, including
significant workforce reductions, and as a result have no remaining internal
capability to identify or develop product candidates.
We are considering various strategic transactions to return value to our
stockholders. If we are unable to identify and complete a strategic transaction,
we will liquidate. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Reference should be made to Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations, in our Annual Report on Form 10-K
for the fiscal year ended December 31, 2008, filed with the SEC in March 2009,
for a description of our critical accounting policies. There have been no
significant changes to our policies since we filed that report.
RESULTS OF OPERATIONS
Comparison of Fiscal Quarters Ended March 31, 2009 and 2008
Revenues
Three Months Ended Percent
March 31, Change
2009 2008 2009/2008
(in thousands)
Revenues $ - $ 278 -100 %
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Revenues for the three months ended March 31, 2008 were primarily from service
revenues earned as part of a consulting services agreement with Celltrion to
provide technical assistance related to the design, engineering and start-up of
Celltrion's manufacturing facility. No services were provided to Celltrion for
the three months ended March 31, 2009.
Revenues earned in one period are not indicative of revenues to be earned in
future periods. We do not expect any revenues for the remainder of 2009.
Research and development expenses
Three Months Ended Percent
March 31, Change
2009 2008 2009/2008
(in thousands)
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Research and development expenses include the costs of internal personnel, outside contractors, allocated overhead and laboratory supplies. We ceased research and development activities during the first quarter of 2008 and therefore no research and development expenses were incurred during the first quarter of 2009. We do not expect to incur research and development expenses during the remainder of 2009.
General and administrative expenses
Three Months Ended Percent
March 31, Change
2009 2008 2009/2008
(in thousands)
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General and administrative expenses consist primarily of compensation costs,
occupancy costs including depreciation expense, fees for accounting, legal and
other professional services and other general corporate expenses.
The decrease in general and administrative expenses in the three months ended
March 31, 2009 over the comparable period of 2008 was primarily due to:
• Labor and benefits, which decreased by $0.5 million primarily associated
with the 2008 reductions in force;
• Consultant and outside labor costs decreased by $2.5 million in 2009, following the termination of the proposed merger, or the Merger, with Raven biotechnologies, inc., or Raven, pursuant to which we incurred $2.3 million in such costs during the first quarter of 2008; and
• Facilities cost decreased by $0.6 million due to the cessation of operations during the first quarter of 2008.
Other income (expense)
Three Months Ended
March 31,
2009 2008
(in thousands)
Interest expense $ (11 ) $ (767 )
Interest income 104 714
Realized gain in available for sale securities 357 -
Valuation adjustments - (1,611 )
Gain on convertible debt repurchase - 713
Other 32 (11 )
Total other income (expense), net $ 482 $ (962 )
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The increase in other income, net for the three months ended March 31, 2009 from
the comparable period in 2008 was primarily due to:
• A decrease in interest expense in 2009, following the repurchase of our 5
1/2% Convertible Senior Subordinated Notes due April 2010, or Convertible
Notes, during 2008;
• A $0.4 million realized gain on the sale of our remaining Celltrion investment;
• A decrease in expenses for mark-to-market adjustments following the valuation of the derivatives on our Convertible Notes during the first quarter of 2008; and
• A partial offset of decreased interest income due to lower overall cash, cash equivalents and investment balances primarily due to our repurchase of Convertible Notes during 2008.
We anticipate future investment income will fluctuate and will be primarily driven by our future cash, cash equivalent and investment balances.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
2009 2008
(in thousands)
As of March 31:
Cash, cash equivalents and investment securities $ 36,723 $ 62,084
Working capital 37,302 65,547
Three Months ended March 31:
Cash used in
Operating activities $ (1,915 ) $ (4,854 )
Investing activities (282 ) (11,432 )
Financing activities - (750 )
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Our primary capital requirements for the three months ended March 31, 2009 were
operating costs. Through March 31, 2009, we financed our operations primarily
through sales of our common stock, the issuance of Series A Preferred Stock, the
issuance of convertible debt, sales of our Celltrion common stock as well as
through revenues from research contracts and grants. Our future capital
requirements will depend upon our ability to identify and exploit business
development opportunities including actively pursuing avenues to enhance
stockholder value through a strategic transaction or a series of strategic
transactions.
Net cash used in operating activities decreased to $1.9 million in the three
months ended March 31, 2009 from $4.9 million for the three months ended
March 31, 2008 and was primarily attributable to our reduced operating losses.
The effect of non-cash items upon operating activities was significant in both
the three months ended March 31, 2009 and March 31, 2008 and included:
• Depreciation expense of zero in 2009 and $0.5 million in 2008, reflecting
the reclassification of equipment, furniture and fixtures to assets held
for sale during the first quarter of 2008;
• Valuation loss of $1.6 million in 2008 reflecting changes in the fair value of outstanding derivatives from the Convertible Notes;
• Gain on redemption of the Convertible Notes of $0.7 million in 2008; and
• Gain on sale of Celltrion common stock of $0.4 million in 2009.
The decrease in cash used in operating activities was also affected by the
following:
• Accounts payable, which increased by $0.1 million in 2009 and decreased by
$2.0 million in 2008 primarily due to the timing of payments and the
reduced level of operating activities; and
• Other liabilities, which decreased by $0.1 million in 2009 and increased $2.4 million in 2008 primarily due to $1.9 million of the Merger costs capitalized at December 31, 2007 that were expensed as general and administrative expense during the three months ended March 31, 2008.
Net cash used in investing activities of $0.3 million in the three months ended
March 31, 2009 was primarily attributable to activities relating to the purchase
and sale of investment securities of $0.7 million, partially offset by proceeds
from the sale of our Celltrion common stock of $0.4 million. Net cash used in
investing activities of $11.4 million in the three months ended March 31, 2008
was primarily attributable to activities relating to the sale of investment
securities of $7.4 million and $4.0 million to Raven pursuant to a bridge loan
in connection with the Merger.
Net cash used in financing activities in the three months ended March 31, 2008
was attributable to gain on repurchase of $1.5 million principal amount of
Convertible Notes at a purchase price of $0.7 million.
At March 31, 2009, $36.7 million, or 92%, of our total assets consisted of cash,
cash equivalents and investment securities. We had working capital of
$37.3 million at March 31, 2009, compared to $65.5 million at March 31, 2008.
This decrease in working capital is primarily due to the following:
• Cash, cash equivalents and investments decreased by $25.4 million
primarily due to our repurchase of Convertible Notes in 2008 and operating
losses;
• Assets held for sale decreased by $9.5 million primarily due to $8.8 million of impairment charges during 2008; and
• A partial offset by the elimination of the derivative liability of $5.1 million resulting from the repurchase of our Convertible Notes in 2008.
We believe that our existing cash, cash equivalents and investment securities will be sufficient to cover our working capital needs and commitments through at least March 31, 2010. Our future capital requirements will depend on our ability to identify and complete additional business opportunities. We are considering various strategic transactions to return value to our stockholders. If we are unable to identify and complete an alternate strategic transaction, we will liquidate.
Off-Balance Sheet Arrangements
As of March 31, 2009, we did not have any off-balance sheet arrangements as
defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
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