This excerpt taken from the GENT 6-K filed Dec 1, 2005.
Liquidity and Capital Resources
For the nine month period ended September 30, 2005, we used approximately 6,700 of cash in operating activities, approximately 1,100 for investing activities, including capital expenditures, and we repaid debt of approximately 9,700, including 2,200 we owed to our affiliate Sirton, and approximately 4,200 ($5,100) of our Series A senior convertible promissory notes.
The sources of cash used to fund our operations, investments, the costs of our initial public offering (IPO), and debt repayment are described below:
In January 2005, we received 1,459 ($1,912) from the final closing of the sale of our Series A senior convertible promissory notes.
In January 2005 and April 2005, our majority shareholder, FinSirton, made capital contributions to us in the amount of 3,900.
On June 21, 2005, we completed an IPO of 2,400,000 ADSs (1 ordinary share = 1 ADS). On July 26, 2005, the underwriters of the IPO exercised part of their over-allotment option and purchased an additional 300,000 ADSs. We received gross proceeds from these transactions of 20,200 ($24,300). In connection with the IPO, holders of approximately 2,400 ($2,900) of our Series A notes elected to convert their notes into our ordinary shares and the remaining balance of the notes amounting to approximately 4,200 ($5,100) were redeemed.
Our 2005 interim operating results reflects the interest expense we incurred on the Series A notes which have now been redeemed or converted into our ordinary shares. That interest expense includes the amortization of the issue discount and the issue costs. During the nine month period ending September 30, 2005, we incurred 4,095 of interest expense on these notes (including 3,837 of amortization of original issue discount and debt issue costs).
We expect to devote substantial resources to continue our research and development efforts, on regulatory expenses, and to expand our licensing and collaboration efforts. Our funding requirements will depend on numerous factors including:
whether we are able to commercialize and sell defibrotide for the uses for which we are developing it;
the scope and results of our clinical trials;
advancement of other product candidates in development;
the timing of, and the costs involved in, obtaining regulatory approvals;
the cost of manufacturing activities;
the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and other patent-related costs, including litigation costs and results of such litigation; and
our ability to establish and maintain additional collaborative arrangements.
We do not expect our revenues to increase significantly until we successfully obtain FDA and European regulatory marketing approval for, and begin selling, defibrotide to treat VOD with multiple-organ failure. We believe that some of the key factors that will affect our internal and external sources of cash are:
our ability to obtain FDA and European regulatory marketing approval for and to commercially launch defibrotide to treat VOD with multiple-organ failure;
the success of our other clinical and pre-clinical development programs, including development of defibrotide to prevent VOD, to treat multiple myeloma, and to mobilize and increase the number of stem cells available for transplant;
the receptivity of the capital markets to financings of biotechnology companies; and
our ability to enter into additional strategic agreements with corporate and academic collaborators and the success of such relationships.
On October 14, 2005, the Company completed a private placement of 1,551,121 ADSs, each representing one (1) ordinary share at $7.05 per ADS. Subject to shareholder approval, investors will also receive warrants to purchase 620,452 ADSs at an exercise price of $9.69 per ADS. The purchase price is subject to a reduction of $1.41 per ADS if the warrants and the ordinary shares underlying the warrants are not approved by the Companys shareholders to be issued with the exclusion of the preemptive rights that would normally attach under Italian law. Gross proceeds from the offering were $10,900. In connection with the offering, the Company issued to one of the placement agents a five year warrant for the purchase of 93,068 ADSs at an exercise price of $9.69 per ADS.
We will need to raise additional financing and/or enter into collaborative or licensing agreements in the future to fund continuing research and development for our product candidates, as well as any mergers or acquisitions in which we may engage. Changes in our operating plans, delays in obtaining approval to market our product candidates, lower than anticipated revenues, increased expenses or other events, may cause us to seek additional debt or equity financing on an accelerated basis. Financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could negatively impact our growth plans and our financial condition and results of operations. Additional equity financing may be dilutive to the holders of our ordinary shares and debt financing, if available, may involve significant cash payment obligations and covenants and/or financial ratios that restrict our ability to operate our business.
In order to issue new equity, our board must meet and resolve to recommend to our shareholders that they approve an amendment to our bylaws to increase our capital. Our
shareholders must then meet and approve that amendment to our bylaws. These meetings take time to call. Also, our shareholders can authorize an increase to our capital for only five years. If authorized capital is not issued by the end of those five years, the authorized capital expires, and our board and shareholders would need to meet again to authorize a new capital increase. Finally, Italian law provides that if the shareholders vote to increase our capital, any interested person may, during the period of 180 days following the filing of the shareholders approval with the Register of Companies, challenge such capital increase if the increase was not in compliance with Italian law. These restrictions could limit our ability to issue new equity on a timely basis.
If we are unable to obtain additional financing, we may be required to reduce the scope of, or delay or eliminate some or all of our planned research, development and commercialization activities, which could harm our financing condition and operating results.