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OXGN > SEC Filings for OXGN > Form 10-Q on 9-May-2013All Recent SEC Filings

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Form 10-Q for OXIGENE INC


9-May-2013

Quarterly Report


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

Our Management's Discussion and Analysis of Financial Condition and Results of Operations as of March 31, 2013 and March 31, 2012 should be read in conjunction with the sections of our audited consolidated financial statements and notes thereto, as well as our "Management's Discussion and Analysis of Financial Condition and Results of Operations" that is included in our Annual Report on Form 10-K for the year ended December 31, 2012, and also with the unaudited financial statements set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q.


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Overview

We are a clinical-stage, biopharmaceutical company developing novel therapeutics primarily to treat cancer. Our primary focus is the development of product candidates referred to as vascular disrupting agents, or VDAs, that selectively disable and destroy abnormal blood vessels that provide solid tumors a means of growth and survival and also are associated with visual impairment in a number of ophthalmological diseases and conditions.

Our lead compound, ZYBRESTAT® is a reversible tubulin binding agent that works by disrupting the network of abnormal blood vessels, or vasculature, within solid tumors, also referred to as vascular disruption. Vascular disruption leads to tumor hypoxia, which refers to the process of starving the tumor of vitally necessary oxygen supply and subsequent tumor cell death. More specifically, ZYBRESTAT selectively targets the existing abnormal and largely immature vasculature found in most solid tumors and causes endothelial cells that make up the walls of the blood vessels in that vasculature to lose their normally flat shape and to become round, thus blocking the flow of blood to the tumor. The downstream tumor environment is then deprived of oxygen and nutrients, and the resulting restriction in blood supply kills the cells in the central portion of the tumor. Based on ZYBRESTAT's antitumor activity observed in animal models, we have conducted multiple clinical trials of ZYBRESTAT in a variety of tumor types.

Update on Strategy and Status of Programs

We continue to develop ZYBRESTAT, which is currently in Phase 2 clinical trials. We have seen clinical activity in ovarian cancer, anaplastic thyroid cancer (ATC) and other indications, and observed tolerability to date in over 400 patients. We primarily focus on the development of product candidates for the treatment of rare cancers that will be eligible for orphan drug status and fast track status. We also believe that combining ZYBRESTAT with other therapies will provide us with multiple clinical strategies for the eventual commercialization of ZYBRESTAT. Based on this and subject to our receipt of sufficient funding, our strategy is as follows:

Ovarian Cancer-To focus on ovarian cancer as one of our lead indications:

• We continue to support the ongoing randomized Phase 2 trial (GOG1861) of ZYBRESTAT in combination with bevacizumab, an anti-VEGF monoclonal antibody whose branded name is AVASTIN®, in patients with relapsed ovarian cancer. We believe that combining vascular targeting agents without cytotoxic chemotherapy may be a clinically active yet potentially better tolerated alternative for the treatment of certain advanced ovarian cancer patients. The trial is being conducted by the Gynecologic Oncology Group or GOG, an organization dedicated to clinical research in the field of gynecologic cancer, and is under the sponsorship of the Cancer Therapy Evaluation Program, or CTEP, of the National Cancer Institute, or NCI. The trial is also being performed in collaboration with Genentech, the manufacturer of bevacizumab, who, along with us, supplies the drugs for the study in addition to providing some of the trial's funding. While we pay for some costs related to this trial, CTEP bears most of the cost of the trial.

The GOG1861 study has enrolled a total of 107 patients and more than 80 sites are participating. To be eligible for the study, patients must have recurrent ovarian cancer, and must have received prior platinum-based chemotherapy. Patients are being randomized into two arms: one arm receives bevacizumab; the second arm receives bevacizumab plus ZYBRESTAT. Patients are treated until disease progression or adverse effects prohibit further therapy. The primary endpoint of the Phase 2 trial is progression-free survival. Secondary endpoints include safety, overall survival and objective responses by treatment. If this trial is completed and is clinically successful in terms of slowing tumor progression, we believe that this combination of vascular targeting agents, without the use of cytotoxic chemotherapy agents-and their often significant side effects-could provide a potentially better tolerated alternative for the treatment of recurrent ovarian cancer patients.

We expect an interim efficacy analysis will be conducted by the third quarter of 2013. We will remain blinded to the data from this interim analysis. If it is determined at that point that the study continues to completion, we anticipate that preliminary data from the completed trial could be available in the first quarter of 2014. Assuming a positive outcome from these analysis and data, we hope to be able to collaborate with the GOG and Genentech, and also receive guidance from the FDA, on the design of a potential pivotal registration trial in this indication that could lead to a new drug application, or NDA, filing in the 2016-2017 timeframe.

• We would also like to support two additional controlled clinical studies in advanced ovarian cancer, subject to our receipt of sufficient funding, as follows:

• A Phase 2 clinical trial of ZYBRESTAT in combination with weekly paclitaxel in patients with persistent or recurrent ovarian cancer. We believe that studying ZYBRESTAT in combination with platinum or paclitaxel-based chemotherapy is another potential path forward, since chemotherapy is the current standard of care in this indication. This would be a multi-center, controlled trial designed to enroll 120 patients in a one-to-one randomization. The primary endpoint would be progression-free survival, with secondary endpoints of safety, overall survival, objective response rate and CA125 response rate. Our target date to begin this trial would be in 2013, if we have sufficient funding.

• A Phase 1b/2 clinical trial of ZYBRESTAT in combination with pazopanib, an antiangiogenic oral tyrosine kinase inhibitor, in recurrent ovarian cancer. We believe that combining vascular targeting agents without cytotoxic chemotherapy may be a clinically active yet potentially better tolerated alternative for the treatment of certain advanced ovarian cancer patients. This trial is dependent on receiving funding from an externally funded collaboration.


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Anaplastic Thyroid Cancer, or ATC-To pursue the commercialization of ZYBRESTAT in Europe for the treatment of ATC with a marketing authorization under exceptional or conditional circumstances:

• We are exploring regulatory approval for ZYBRESTAT in ATC in the EU with a marketing authorization under exceptional circumstances, which might allow us to receive approval in Europe without conducting another clinical trial and for substantially less cost. European regulations provide that these special marketing approvals may be obtained in the case of therapies for the treatment of life-threatening diseases with orphan designation where there is an unmet medical need. This approval might enable potential filings in Japan, Korea, China, Canada and other countries as well. We received scientific advice from two countries in the European Union in March of 2013 related to this regulatory approval path. We are now in the process of requesting scientific advice from the Scientific Advice Working Party of the European Medicines Agency, or EMA, to obtain confirmation of this advice, including advice on manufacturing and required drug lots required for registration, We could receive a written response to this request potentially by late July, and-if required -have a meeting with EMA early in September 2013. We believe that this path may be a potential alternative path forward which could enable us to potentially submit an application for marketing approval for ZYBRESTAT by 2015.

• In December 2011, we established a distribution agreement with Azanta Danmark A/S, or Azanta, to provide access to ZYBRESTAT for the treatment of patients with ATC on a compassionate use basis in certain specified territories. This agreement was expanded to include additional territories in August 2012 also for treatment on a compassionate use basis. The specified territories include the European Union, including the Nordic countries and Switzerland, Canada, Israel and South Korea. This program, which is managed by Azanta, provides a regulatory mechanism to allow healthcare professionals in the specified territories to prescribe ZYBRESTAT to individual ATC patients while it is still in development. Under the terms of the agreement, we provide ZYBRESTAT to Azanta, and Azanta serves as our exclusive distributor for ZYBRESTAT in the specified territories for this purpose. Azanta provides ZYBRESTAT to physicians solely to treat ATC on a compassionate use basis in the specified territories until such time as ZYBRESTAT may obtain marketing approval in that territory. The agreement may be further expanded to include other countries on a country-by-country basis. Azanta is responsible for all regulatory activities necessary to distribute and sell ZYBRESTAT on a compassionate use basis for the treatment of ATC within the specified territories. There is no transfer of ownership of intellectual property rights for ZYBRESTAT to Azanta under the terms of the agreement.

Acute Myelogenous Leukemia, or AML-To continue to support the ongoing investigator-sponsored Phase 1 trial of OXi4503 in patients with acute myelogenous leukemia, or AML, or myelodysplastic syndrome, or MDS, being conducted at the University of Florida and with support by The Leukemia & Lymphoma Society's Therapy Acceleration Program.

• This open-label, dose-escalating study for the treatment of up to 36 patients is being conducted in patients with relapsed or refractory AML and MDS and will evaluate the safety profile, maximum tolerated dose and biologic activity of OXi4503 in these patients. In addition to the University of Florida this study is supported in part by the Leukemia & Lymphoma Society. New patients are continuing to be enrolled in this study. As of May 3, 2013 a total of 10 patients have been enrolled into this study, and no dose-limiting adverse events have been encountered.

Carcinoid Syndrome-To pursue the development of ZYBRESTAT to treat refractory carcinoid syndrome associated with metastatic carcinoid tumors involving the liver.

• Another indication that we started to pursue in 2012 is the treatment of carcinoid syndrome. In June 2012, we announced the establishment of an exclusive, worldwide licensing agreement with Angiogene Pharmaceuticals Ltd., a U.K.-based drug development company, relative to their VDA program for neuroendocrine cancers, focused specifically on carcinoid syndrome. We plan to leverage these assets for the development and potential commercialization of ZYBRESTAT to treat refractory carcinoid syndrome associated with metastatic carcinoid tumors involving the liver.

Given the compelling scientific basis for using a VDA to disrupt blood flow to induce tumor necrosis and reduce production of biologically active mediators, such as serotonin, which are associated with the most severe, debilitating symptoms of this disease, we plan to investigate the effectiveness of ZYBRESTAT in this setting. We believe that using this approach has the potential to provide a faster path to establishing clinical activity of ZYBRESTAT, as compared to more typical endpoints such as progression-free survival or overall survival, as utilized in our other ongoing programs, and to significantly expand the commercial opportunity and patent protection for ZYBRESTAT. We are conducting preclinical studies and exploring possible clinical studies in this indication, but we would require additional funding to provide the financial resources for such clinical studies.


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Orphan Drug Status

We currently have orphan drug status in the United States and in the European Union for ZYBRESTAT for the treatment of ATC, medullary thyroid cancer, Stage IV papillary thyroid cancer, and Stage IV follicular thyroid cancer, and for ZYBRETSTAT in the United States for the treatment of ovarian cancer. We have applied for orphan drug status in the European Union for ZYBRESTAT for the treatment of ovarian cancer. We also have orphan drug status in the United States for our product candidate OXi4503 for the treatment of AML.

The FDA has also granted Fast Track status to ZYBRESTAT for the treatment of ATC and a special protocol assessment, or SPA, was granted for a Phase 3 trial in ATC.

ZYBRESTAT for Ophthalmology

In addition to developing ZYBRESTAT as an intravenously administered therapy for oncology indications, we have previously undertaken an ophthalmology research and development program with ZYBRESTAT with the ultimate goal of developing a topical formulation of ZYBRESTAT for ophthalmological diseases and conditions that are characterized by abnormal blood vessel growth within the eye that result in loss of vision. While we continue to seek partnership opportunities that will allow us to continue this research, due to financial constraints, we are not actively pursuing development in this area at this time.

Financial Resources

Since the fall of 2011, we have focused our capital resources on our most promising early-stage clinical programs with the goal of reducing our cash utilization. Accordingly, our resources have been focused primarily on supporting our ovarian Phase 2 clinical trial which is being conducted by the GOG, our Phase 1 clinical trial in acute myeloid leukemia, or AML, being conducted by the University of Florida, our distribution agreement with Azanta, preclinical programs and the manufacture of clinical supply of our product candidates to support our programs. We have also spent resources completing our ATC trial (the FACT trial) and designing a Phase 3 registrational study in anaplastic thyroid cancer, or ATC (the FACT 2 trial), and while we were successful in receiving a SPA with the FDA for the FACT 2 trial in 2012, we have subsequently determined that this trial is not financially feasible at this time with our limited financial resources. We are now focusing our efforts in this area on pursuing the commercialization of ZYBRESTAT in Europe for the treatment of ATC with a marketing authorization under exceptional or conditional circumstances.

We are committed to a disciplined financial strategy and as such maintain a limited employee and facilities base, with development, scientific, finance and administrative functions, which include, among other things, product development, regulatory oversight and clinical testing. Our research and development team members typically work on a number of research and development projects concurrently. Accordingly, we do not separately track the costs for each of these research and development projects to enable separate disclosure of these costs on a project-by-project basis. We conduct scientific activities pursuant to collaborative arrangements with universities. Regulatory and clinical testing functions are generally contracted out to third-party, specialty organizations.

We have experienced net losses every year since our inception and, as of March 31, 2013, had an accumulated deficit of approximately $227,312,000. We expect to incur significant additional operating losses over at least the next several years, principally as a result of our continuing clinical trials and anticipated research and development expenditures. The principal source of our working capital to date has been the proceeds of private and public equity financings and to a significantly lesser extent the exercise of warrants and stock options. We currently have no recurring material amount of licensing or other income. As of March 31, 2013, we had approximately $4,582,000 in cash and restricted cash and after closing a financing in April 2013 as described under the heading Liquidity and Capital Resources below, we had approximately $8,747,000 in cash and restricted cash as of April 30, 2013.

Currently, we have two potential vehicles for raising capital, and we recently completed a financing in April 2013, as described in detail in Notes 2 and 4 to the Condensed Financial Statements for the quarter ended March 31, 2013 and under the heading Liquidity and Capital Resources below. We have an "at the market" equity offering sales agreement, or the ATM Agreement, with MLV & Co. LLC, or MLV, pursuant to which we may issue and sell shares of our common stock from time to time through MLV who will act as our sales agent and underwriter. We are limited as to how many shares we can sell under the ATM Agreement due to limitations imposed by the Securities and Exchange Commission, or the SEC, on the number of shares issuable pursuant to a Form S-3 registration statement in a primary offering by smaller reporting companies such as us. Further, we are restricted from using this facility until 90 days following the effectiveness of a registration statement for the private placement as described under the heading Liquidity and Capital Resources below. Subject to this restriction, as of April 30, 2013 the total dollar amount of common stock that we could sell under the ATM Agreement during the next twelve months is approximately $264,000 under our current registration statement. We may be able to sell more shares under this agreement over the next twelve months depending on several factors including our stock price, number of shares outstanding, when the sales take place and the effectiveness of a registration statement for the private placement described under the heading Liquidity and Capital Resources below. Additionally, subject to a minimum purchase price of $6.00 per share and other conditions of the arrangement, we may sell up to a total of $20,000,000 of our common stock to Lincoln Park Capital Fund, LLC, or LPC, pursuant to a stock purchase agreement, the LPC Purchase Agreement. The price of our common stock as of May 3, 2013 was $3.55 and therefore the facility is not available to us at this time. Further, we are restricted from using this facility until 90 days following the effectiveness of a registration statement for the private placement as described under the heading Liquidity and Capital Resources below.


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Based on our limited ongoing programs and operations we expect our existing cash to support our operations through the first quarter of 2014. However, while this level of cash utilization does not allow us to initiate any significant projects, including clinical trials, to further the development of our most advanced product candidates, it allows for initial drug manufacturing activities that we may undertake in connection with the planned filing for a European Marketing Authorization application for ZYBRESTAT in ATC. Any significant further development of ZYBRESTAT or other capital intensive activities will be contingent upon our ability to raise additional capital in addition to our existing financing arrangements, as to which we can give you no assurance.

We will require significant additional funding to fund operations and to continue the development of our product candidates. Such funding may not be available to us on acceptable terms, or at all. If we are unable to access additional funds when needed, we may not be able to continue the development of our product candidates or we could be required to delay, scale back or eliminate some or all of our development programs and other operations. Any additional equity financing, which may not be available to us or may not be available on favorable terms, most likely will be dilutive to our current stockholders and debt financing, if available, may involve restrictive covenants. If we access funds through collaborative or licensing arrangements, we may be required to relinquish rights to some of our technologies or product candidates that we would otherwise seek to develop or commercialize on our own, on terms that are not favorable to us. Our ability to access capital when needed is not assured and, if not achieved on a timely basis, will materially harm our business, financial condition and results of operations.

Results of Operations

Three Months Ended March 31, 2013 and March 31, 2012

Revenue

We recognized approximately $0 and $114,000 in product revenue for the three month periods ended March 31, 2013 and March 31, 2012, respectively. Product revenue in 2012 represents amounts recognized under our distribution agreement with Azanta which we entered into in December 2011. We recognized product revenues in the three month period ended March 31, 2012, after delivery of ZYBRESTAT for compassionate use to Azanta and the 30 day inspection period had expired at which point the drug was deemed accepted. As of April 30, 2013, we have orders from Azanta for future delivery of ZYBRESTAT which we anticipate would put us on track to record approximately the same levels of revenue in 2013 as in 2012, although there can be no assurance of this at this time.

Our drug was expensed in the period it was manufactured, since it is in the development stage and does not have an alternative future use. As a result, the product provided to Azanta had a zero cost basis, and therefore there is no cost-of-goods sold.

Our future revenues will depend upon our ability to establish collaborations with respect to, and generate revenues from, products currently under development by us. We expect that we will not generate meaningful revenue in the near term future, unless and until we enter into new collaborations providing for funding through the payment of licensing fees and up-front payments.

Research and development expenses

The table below summarizes the most significant components of our research and development expenses for the periods indicated in thousands and provides the percentage change in these components:

                                                                                             Change
                                              Three months ended March 31,              2013 versus 2012
                                               2013                  2012             Amount            %

External services                          $         359         $         267       $     92            34 %
Employee compensation and related                    277                   259             18             7 %
Employee Stock-based compensation                     37                    16             21           131 %
Other                                                 73                   112            (39 )         -35 %


Total research and development             $         746         $         654       $     92            14 %

The increase in external services expense for the three month period ended March 31, 2013 compared to the same three month period in 2012 is primarily attributable to costs associated with our ovarian Phase 2 clinical trial which is being conducted by the GOG, under the sponsorship of CTEP. While CTEP bears most of the cost of the trial, we pay for some costs related to this trial. The increase in external services expense was in part offset by reductions in costs associated with our previous clinical programs which have all been completed or placed on hold, including those we conducted in anaplastic thyroid cancer.

The increase in employee compensation and related expenses for the three month period ended March 31, 2013 compared to the same three month period in 2012 was due to the transition of employees during the first quarter of 2012 in which some positions were vacant.


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Employee stock-based compensation expense increased for the three month period ended March 31, 2013 compared to the same three month period in 2012 due primarily to the timing and vesting of option grants.

The decrease in other expenses for the three month period ended March 31, 2013 compared to the same period in 2012 is due primarily to the reduction in the allocation of facilities expense due to closing our administrative offices in Massachusetts and the consolidation of our offices in South San Francisco into a smaller space.

We continue to evaluate next steps in the development of our clinical programs. As a result, research and development expenses in the future could vary significantly from those incurred in the 2012 fiscal year or the first three months of 2013. We have plans to begin initial drug manufacture activities associated with the planned EMA filing for a European Marketing Authorization Application for ZYBRESTAT in ATC and therefore research and development expenses are expected to increase in the remainder of 2013 compared to 2012.

General and administrative expenses

The table below summarizes the most significant components of our general and administrative expenses for the periods indicated in thousands and provides the percentage changes in these components:

                                                                                           Change
                                              Three months ended March 31,            2013 versus 2012
                                                2013                2012            Amount            %

Employee compensation and related           $         324       $         493      $    (169 )        -34 %
Employee Stock-based compensation                      36                  40             (4 )        -10 %
Consulting and professional services                  589                 562             27            5 %
Other                                                 186                 237            (51 )        -22 %


Total general and administrative            $       1,135       $       1,332      $    (197 )        -15 %

Employee compensation and related expenses decreased in the three month period ended March 31, 2013 as compared to the same periods in 2012, due primarily to additional compensation in the first quarter of 2012 related to the transition of consolidating our Massachusetts administrative offices, including our finance employees, to our California headquarters.

Employee stock-based compensation expense decreased for the three month period ended March 31, 2013 compared to the same three month period in 2012 due to the timing and vesting of option grants.

Consulting and professional services increased in the three month period ended March 31, 2013 as compared to the same periods in 2012 due primarily to board fees, which increased due to the addition of a new board member.

The decrease in other expenses for the three month period ended March 31, 2013 compared to the same period in 2012 is due primarily to the reduction in facilities expense due to the closing of our administrative offices in Massachusetts and the consolidation of our offices in South San Francisco into a smaller space. In the three month period ended March 31, 2012, we recorded an adjustment of $13,000 to the restructuring charge which we initially recorded in the third quarter of 2011. The initial charge was a result of a restructuring plan announced on September 1, 2011, which included a reduction in work force, and was designed to focus our capital resources on our most promising . . .

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