Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
TNGN > SEC Filings for TNGN > Form 10-Q on 14-Nov-2012All Recent SEC Filings

Show all filings for TENGION INC

Form 10-Q for TENGION INC


14-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.

Forward-Looking Statements

Any statements herein or otherwise made in writing or orally by us with regard to our expectations as to financial results and other aspects of our business may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our future plans, objectives, expectations and intentions and may be identified by words like "believe," "expect," "designed," "may," "will," "should," "seek," "anticipate," and similar expressions. These forward-looking statements may include, but are not limited to, statements concerning: (i) our estimates regarding expenses, future revenues, capital requirements, needs for additional financing and our ability to obtain such financing; (ii) our plans to develop and commercialize our product candidates; (iii) our ongoing and planned preclinical studies and clinical trials; (iv) the timing of and our ability to obtain and maintain marketing approvals for our product candidates; (v) the rate and degree of market acceptance and clinical utility of our products; (vi) our plans to leverage our Organ Regeneration Platform to discover and develop product candidates; (vii) our ability to identify and develop product candidates; (viii) our commercialization, marketing and manufacturing capabilities and strategy; (ix) our intellectual property position; and (x) other risks and uncertainties, including those under the heading "Risk Factors" in Item 1A of Part II of this Quarterly Report on Form 10-Q , in the section entitled "Risk Factors" in Item IA of Part I of our Annual Report on Form 10-K for the year ended December 31, 2011, as amended, as well as in other documents filed by us with the SEC.

-17-

Although we believe that our expectations are based on reasonable assumptions within the bounds of our knowledge of our business and operations, the forward-looking statements contained in this document are neither promises nor guarantees. Our business is subject to significant risks and uncertainties and there can be no assurance that our actual results will not differ materially from our expectations. Factors which could cause actual results to differ materially from our expectations set forth in our forward-looking statements are set forth in the section entitled "Risk Factors" in Item 1A of Part II of this Quarterly Report on Form 10-Q, in the section entitled "Risk Factors" in Item IA of Part I of our Annual Report on Form 10-K for the year ended December 31, 2011, as amended, as well as in other documents filed by us with the SEC and include, among others:(i) we will need to raise additional funds through collaborative arrangements or the issuance of additional equity to execute our business plan beyond May 2013, or seek protection under the U.S. bankruptcy laws; (ii) the U.S. Food and Drug Administration (FDA) could place our Neo-Urinary Conduit clinical trial on clinical hold; (iii) patients enrolled in our Neo-Urinary Conduit clinical trial may experience adverse events, which could delay our clinical trial or cause us to terminate the development of the Neo-Urinary Conduit; (iv) we may have difficulty enrolling patients in our clinical trials, including our Phase 1 clinical trial for our Neo-Urinary Conduit; (v) data from our ongoing preclinical studies, including our proposed GLP program for the Neo-Kidney Augment, may not continue to be supportive of advancing such preclinical product candidates; and (vi) we may be unable to progress our product candidates that are undergoing preclinical testing, including our Neo-Kidney Augment, into clinical trials and we may not be successful in designing such clinical trials in a manner that supports development of such product candidates.

The forward-looking statements made in this document are made only as of the date hereof and we do not intend to update any of these factors or to publicly announce the results of any revisions to any of our forward-looking statements other than as required under the federal securities laws.

Overview

Tengion is a regenerative medicine company focused on discovering, developing, manufacturing and commercializing a range of neo-organs, or products composed of living cells, with or without synthetic or natural materials, implanted or injected into the body to engraft into, regenerate, or replace a damaged tissue or organ. Using our Organ Regeneration Platform, we create these neo-organs using a patient's own cells, or autologous cells. We believe our proprietary product candidates harness the intrinsic regenerative pathways of the body to regenerate a range of native-like organs and tissues. Our product candidates are intended to delay or eliminate the need for chronic disease therapies, organ transplantation, and the administration of anti-rejection medications. In addition, our neo-organs are designed to avoid the need to substitute other tissues of the body for a purpose to which they are poorly suited.

Building on our clinical and preclinical experience, we are initially leveraging our Organ Regeneration Platform to develop our Neo-Urinary Conduit for bladder cancer patients who are in need of a urinary diversion and our Neo-Kidney Augment for patients with advanced chronic kidney disease.

Our Neo-Urinary Conduit is intended to replace the use of bowel tissue in bladder cancer patients requiring a non-continent urinary diversion after bladder removal surgery, or cystectomy. We are able to manufacture our Neo-Urinary Conduit using a proprietary process that takes four weeks or less and uses smooth muscle cells derived from a routine biopsy. We are currently conducting a Phase I clinical trial for our Neo-Urinary Conduit in bladder cancer patients to assess its safety and preliminary efficacy, as well as to translate the surgical implantation procedure utilized in preclinical studies. This trial is an open-label, single-arm study, which is currently expected to enroll up to ten patients. We enrolled our sixth patient in this trial in the third quarter of 2012. In October 2012, we announced the death of two patients enrolled in the trial. Both patients died due to afflictions unrelated to the Neo-Urinary Conduit or the surgical procedure. We notified the Data Safety Monitoring Board of these events and the Phase I clinical trial is ongoing. While we and our clinical investigators believe that the surgical technique used successfully in animal models has been translated to humans, we are continuing to seek to refine the appropriate post-surgical care of these patients. We are actively recruiting and remain focused on enrolling the remaining four patients in the trial by the end of 2012, however the timing of enrolling the seventh patient may result in completing enrollment of this trial in the first quarter of 2013.

Our Neo-Kidney Augment is being developed to prevent or delay dialysis by increasing renal function in patients with advanced chronic kidney disease. Our Neo-Kidney Augment is based on our proprietary technology, which is expected to use the patient's cells, procured by a needle biopsy of the patient's kidney, to create an injectable product candidate that can catalyze the regeneration of functional kidney tissue. We recently completed a successful Pre-IND meeting with the U.S. Food and Drug Administration ("FDA") for the Neo-Kidney Augment. We and the FDA have agreed on a good laboratory practice ("GLP") animal study program required to support an Investigational New Drug ("IND") filing and initiation of a Phase I clinical trial in chronic kidney disease ("CKD") patients. We anticipate we will submit an IND filing for the product candidate during the first half of 2013 and that our Phase 1 trial will provide initial human proof-of-concept data in 2014. We also continue to explore moving our Neo-Kidney Augment forward in Europe using the Advanced Therapy Medicinal Products, or ATMP, pathway, an established European regulatory route for advanced cell based therapies. We have obtained scientific advice from a European competent authority (Swedish Medicinal Products Agency) and assuming adequate funding is available, we intend to pursue our Neo-Kidney Augment development program in Europe.

-18-

To date, we have devoted substantially all of our resources to the development of our Organ Regeneration Platform and product candidates, as well as to our facilities that we employ to manufacture our neo-organs. Since our inception in July 2003, we have had no revenue from product sales, and have funded our operations principally through the private and public sales of equity securities and debt financings. We have never been profitable and, as of September 30, 2012, we had an accumulated deficit of $243.1 million. We expect to continue to incur significant operating losses for the foreseeable future as we advance our product candidates from discovery through preclinical studies and clinical trials and seek marketing approval and eventual commercialization.

Cash, cash equivalents and short-term investments at September 30, 2012, were $1.4 million, representing 35.3% of total assets. Based upon our current expected level of operating expenditures and debt repayment, and assuming we are not required to settle any outstanding warrants in cash or redeem, or pay cash interest on, any of our Convertible Notes, we expect to be able to fund operations through May 2013. This period could be shortened if there are any significant increases in planned spending on development programs than anticipated or other unforeseen events. We will need to raise additional funds through collaborative arrangements, public or private sales of debt or equity securities, commercial loan facilities, or some combination thereof. There is no assurance that other financing will be available when needed to allow us to continue our operations or if available, on terms acceptable to us.

In March 2011, we issued warrants to purchase 1,046,102 shares of common stock in connection with a private placement transaction. We valued the warrants as derivative financial instruments as of the date of issuance (March 4, 2011) and will continue to do so at each reporting date, with any changes in fair value being recorded on the Statements of Operations. The warrants contain a net cash settlement provision under which the warrant holders may require us to purchase the warrants in exchange for a cash payment following the announcement of specified events defined as Fundamental Transactions involving the Company (e.g., merger, sale of all or substantially all assets, tender offer, or share exchange) or a Delisting, which is deemed to occur when the common stock is no longer listed on a national securities exchange. As of September 30, 2012, the fair value recorded on our balance sheet of $2.1 million exceeded the calculated net cash settlement value of $1.1 million. We will continue to classify the fair value of the warrants as a liability until the warrants are exercised, expire, or are amended in a way that would no longer require these warrants to be classified as a liability.

Recent Developments

On October 3, 2012, the Company completed a private placement (the 2012 Financing) of $15.0 million aggregate principal amount of notes (the Notes). The principal amount of Notes includes the exchange of approximately $1.0 million of debt issued by the Company in September 2012. The Company issued warrants (the 2012 Warrants) to the holders of the Notes to purchase approximately 51.1 million shares of common stock at an initial exercise price of $0.75 per share. The exercise price and number of shares issuable upon exercise of the warrants are subject to adjustment under certain circumstances.

The Notes are convertible under certain circumstances into shares of the Company's common stock at a conversion rate of 1,333 shares per $1,000 of principal amount of the Notes. The conversion rate is subject to adjustment under certain circumstances. The Company may not redeem the Notes.

The Company intends to use the net proceeds of this transaction primarily to fund research and development activities for its two lead programs, including completing enrollment in the Phase 1 clinical trial for its Neo-Urinary Conduit as well as submitting an Investigational New Drug filing to the U.S. Food and Drug Administration for the Company's Neo-Kidney Augment.

In connection with the issuance of the Notes, the Company granted the lenders an option to purchase up to an additional $20.0 million aggregate principal amount of the Notes at any time until June 30, 2013. One of the lenders, Celgene Corporation, secured a right of first negotiation on the Company's Neo-Urinary Conduit program in exchange for receiving fewer warrants than the other lenders.

-19-

On September 4, 2012, the Company was notified by NASDAQ of its hearing panel's determination to delist the Company's common stock from NASDAQ effective at the open of business on Thursday, September 6, 2012. This delisting triggered the right of the holders of warrants issued in March 2011 to require the Company to purchase the warrants in exchange for a cash settlement value which was calculated as $0.64 per warrant share. The warrant holders have until December 5, 2012 to present the warrants to the Company. If all the warrant holders exercise this option, the Company would be required to pay a total cash settlement value of approximately $0.7 million.

Financial Operations Overview

Research and Development Expense

Our research and development expense consists of expenses incurred in developing and testing our product candidates and are expensed as incurred. Research and development expense include:

personnel related expenses, including salaries, benefits, travel and other related expenses including stock-based compensation;

payments made to third-party contract research organizations for preclinical studies, investigative sites for clinical trials and consultants;

costs associated with regulatory filings and the advancement of our product candidates through preclinical studies and clinical trials;

laboratory and other supplies;

manufacturing development costs; and

facility maintenance.

Preclinical study and clinical trial costs for our product candidates are a significant component of our current research and development expenses. We track and record information regarding external research and development expenses on a per-study basis. Preclinical studies are currently coordinated with third-party contract research organizations and expense is recognized based on the percentage completed by study at the end of each reporting period. Clinical trials are currently coordinated through a number of contracted sites and expense is recognized based on a number of factors, including actual and estimated patient enrollment and visits, direct pass-through costs and other clinical site fees. We utilize internal employees, resources and facilities across multiple product candidates. We do not allocate internal research and development expenses among product candidates.

The following table summarizes our research and development expense for the three and nine months ended September 30, 2011 and 2012 (in thousands):

                                  Three months ended                         Nine months ended
                                     September 30,                             September 30,
                           2011          2012         Change         2011          2012         Change
Third-party direct
program expenses:
Urologic                $     121     $     195     $      74     $     550     $     535     $     (15 )
Renal                         564           525           (39 )       1,676         1,517          (159 )
Total third-party
direct program
expenses                      685           720            35         2,226         2,052          (174 )
Other research and
development expense         2,152         1,718          (434 )       7,353         5,869        (1,484 )
Total research and
development expense     $   2,837     $   2,438     $    (399 )   $   9,579     $   7,921     $  (1,658 )

From our inception in July 2003 through September 30, 2012, we have incurred research and development expense of $125.8 million. We expect that a large percentage of our research and development expense in the future will be incurred in support of our current and future preclinical and clinical development programs. These expenditures are subject to numerous uncertainties in timing and cost to completion. We expect to continue to test our product candidates in preclinical studies for toxicology, safety and efficacy, and to conduct additional clinical trials for each product candidate. If we are not able to engage a partner prior to the commencement of later stage clinical trials, we may fund these trials ourselves. As we obtain results from clinical trials, we may elect to discontinue or delay clinical trials for certain product candidates or programs in order to focus our resources on more promising product candidates or programs. Completion of clinical trials by us or our future collaborators may take several years or more, but the length of time generally varies according to the type, complexity, novelty and intended use of a product candidate. The cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development, including, among others:

-20-

the number of sites included in the trials;

the length of time required to enroll suitable patients;

the number of patients that participate in the trials;

the duration of patient follow-up;

the development stage of the product candidate; and

the efficacy and safety profile of the product candidate.

None of our product candidates have received FDA or foreign regulatory marketing approval. In order to grant marketing approval, the FDA or foreign regulatory agencies must conclude that clinical data establishes the safety and efficacy of our product candidates. Furthermore, our strategy includes entering into collaborations with third parties to participate in the development and commercialization of our product candidates. In the event that third parties have control over the clinical trial process for a product candidate, the estimated completion date would largely be under control of that third party rather than under our control. We cannot forecast with any degree of certainty which of our product candidates will be subject to future collaborations or how such arrangements would affect our development plan or capital requirements.

As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our development projects or when and to what extent we will receive cash inflows from the commercialization and sale of an approved product candidate.

Critical Accounting Policies and Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make significant judgments and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Management bases these significant judgments and estimates on historical experience and other assumptions it believes to be reasonable based upon information presently available. Actual results could differ from those estimates under different assumptions, judgments or conditions. There were no material changes to our critical accounting policies and use of estimates previously disclosed in our 2011 Annual Report on Form 10-K.

Results of Operations

Comparison of Three and Nine Months Ended September 30, 2011 and 2012

Research and Development Expense. Research and development expense for the three
and nine months ended September 30, 2011 and 2012 were comprised of the
following (in thousands):

                                  Three months ended                         Nine months ended
                                     September 30,                             September 30,
                           2011          2012         Change         2011          2012         Change
Compensation and
related expense         $   1,395     $   1,069     $    (326 )   $   4,975     $   3,402     $  (1,573 )
External services -
direct third parties          685           720            35         2,226         2,052          (174 )
External services -
other                         125            76           (49 )         270           462           192
Research materials
and related expense           207           320           113           762         1,012           250
Facilities and
related expense               425           253          (172 )       1,346           993          (353 )
Total research and
development expense     $   2,837     $   2,438     $    (399 )   $   9,579     $   7,921     $  (1,658 )

Research and development expense were $2.8 million and $2.4 million for the three months ended September 30, 2011 and 2012, respectively, and $9.6 million and $8.0 million for the nine months ended September 30, 2011 and 2012, respectively. The decrease in research and development expense for the three and nine months ended September 30, 2012 was primarily due to a reduction in compensation and related expenses resulting from fewer employees as compared to the three and nine months ended September 30, 2011, as well as a reduction in facilities and related expense due to lower recorded rent expense due to the fact that rent expense for the Pennsylvania facility is now recorded in the other expense line on Company's Statement of Operations.

-21-

General and Administrative Expense. General and administrative expense for the three and nine months ended September 30, 2011 and 2012 were comprised of the following (in thousands):

                                  Three months ended                         Nine months ended
                                     September 30,                             September 30,
                           2011          2012         Change         2011          2012         Change
Compensation and
related expense         $     739     $     541     $    (198 )   $   3,240     $   1,695     $  (1,545 )
Professional fees             520           459           (61 )       1,506         1,722           248
Facilities and
related expense                56            83            27           227           374           147
Insurance, travel and
other expenses                 68           115            47           224           226             2
Total general and
administrative
expense                 $   1,383     $   1,198     $    (185 )   $   5,197     $   4,017     $  (1,148 )

General and administrative expense were $1.4 million and $1.2 million for the three months ended September 30, 2011 and 2012, respectively, and $5.2 million and $4.0 million for the nine months ended September 30, 2011 and 2012, respectively. The decrease in general and administrative expense for the three and nine months ended September 30, 2012 was primarily due to a reduction in compensation and related expenses resulting from fewer employees as compared to the three and nine months ended September 30, 2011.

Depreciation Expense. Depreciation expense was $0.7 million and $0.1 million for the three months ended September 30, 2011 and 2012, respectively, and $2.8 million and $0.4 million for the nine months ended September 30, 2011 and 2012, respectively. The decrease for the three and nine months ended September 30, 2012 was primarily due to the recording during the fourth quarter of 2011 of an impairment charge, which reduced the carrying value of assets at our East Norriton, Pennsylvania facility. The decrease was also due to a change during the second quarter of 2011 in the estimated useful life of leasehold improvements associated with leased laboratory space in Winston-Salem, North Carolina upon the extension of that lease.

Other Expense. Other expense was $26,000 and $38,000 for the three months ended September 30, 2011 and 2012, respectively, and $1.0 million and $0.1 million for the nine months ended September 30, 2011 and 2012, respectively. During the first quarter of 2011, we recorded a non-cash charge of $0.9 million due to the initial recognition of a lease liability. The liability resulted from a lease agreement entered into in February 2006 that became effective in March 2011 for additional warehouse space that will not be utilized over the lease term.

Interest Income (Expense). Interest income was $12,000 and $1,000 for the three months ended September 30, 2011 and 2012, respectively, and $39,000 and $12,000 for the nine months ended September 30, 2011 and 2012, respectively. The decrease was primarily due to decreased average cash balances. Interest expense was $0.2 million and $0.5 million for the three months ended September 30, 2011 and 2012, respectively, and $0.7 million and $0.8 million for the three months ended September 30, 2011 and 2012, respectively. The increase is primarily due to $0.3 million related to the September 2012 bridge financing that is offset by lower average debt facility balances outstanding in 2012.

Change in Fair Value of Warrant Liability. During the three and nine months ended September 30, 2012, we recorded a non-cash charge of $0.3 million and a non-cash credit of $0.4 million, respectively, on our statements of operations due to a change in the fair value of the warrant liability for warrants to purchase common stock that were issued in March 2011. The increase in fair value for the three months ended Setember 30, 2012 was due to an increase in management's assumption of the probability of a net cash settlement of warrants. The decrease in fair value for the nine months ended September 30, 2012 was primarily due to a decrease in the price per share of our common stock. During the three and nine months ended September 30, 2011, we recorded a non-cash credit of $4.2 million and $14.1 million, respectively, on our statements of operations due to a decrease in the fair value of the warrant liability for warrants to purchase common stock that were issued in March 2011. The decrease in fair value was primarily due to a decrease in the price per share of our common stock between the date of issuance of the warrants (March 4, 2011) and March 31, 2011, and between the date of issuance of the warrants (March 4, 2011) and September 30, 2011.

-22-

Liquidity and Capital Resources

Source of Liquidity

Cash, cash equivalents and short-term investments at September 30, 2012, were $1.4 million, representing 35.3% of total assets. On October 2, 2012, Company entered into several agreements with certain new and existing investors to provide financing in the form of Senior Secured Convertible Notes (the Notes) of approximately $15 million. Based upon our current expected level of operating expenditures and debt repayment, and assuming we are not required to settle any outstanding warrants in cash or redeem, or pay cash interest on, any of the Notes, we expect to be able to fund operations through May 2013. This period could be shortened if there are any significant increases in planned spending on . . .

  Add TNGN to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for TNGN - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.