TGEN » Topics » Liquidity and Capital Resources

This excerpt taken from the TGEN 10-Q filed May 7, 2009.

Liquidity and Capital Resources

We had cash and cash equivalents of $3.9 million at March 31, 2009, compared to $5.2 million at December 31, 2008. The decrease primarily reflects cash used in operations of $1.3 million.

Our primary sources of capital are public and private sales of our equity securities and cash payments received from our collaborative partners and through proceeds from the issuance of debt. To a lesser degree, we have also financed our operations through interest earned on our cash and, in the last two years, through license revenue. These financing sources have historically allowed us to maintain adequate levels of cash and cash equivalents but, particularly in the current market environment and given our inability to secure additional financial resources notwithstanding our considerable efforts to date, we believe they are increasingly unlikely to continue to do so. Our primary expenses are currently related to conducting the Celladon MYDICAR® manufacturing campaign and technology transfer, the development of our research and development programs, prosecution of our intellectual property interests, and general and administrative support for these activities.

Most of our revenue has been derived under collaborative research and development agreements relating to the development of our potential product candidates. We do not expect the revenue generated from our current or future collaborative research and development and manufacturing arrangements to be sufficient to fully fund the development and commercialization of our product candidates. As a result, even if we are able to secure additional financial resources in time to continue our operations, which we believe is increasingly unlikely, we do not expect to generate ongoing positive cash flow from our operations for the foreseeable future and our ability to generate any sustained positive cash flow is dependent upon our success at developing and commercializing our product candidates.

We will require substantial additional funding to continue our operations and to fund development and commercialization of our three primary product development programs, which are LCA, HD and ALS. While the LCA program, currently in clinical trials sponsored and funded by our collaborative partner UCL/M, will not require substantial funding or staff support from us in 2009, our HD collaboration with UI requires us to make annual license payments, to fund intellectual property prosecution and to fund certain product development efforts. In addition, our option agreement with UI related to the ALS program requires us, by June 30, 2009, to meet certain financial diligence requirements, including the financial capability to fund ALS research at UI, in order to exercise the option and take a license to the intellectual property at UI related to the program. Based on financing progress and anticipated product development timelines, in light of our current financial resources, we are in the process of evaluating our continued involvement in both the HD and ALS programs going forward. We will continue later-stage development of our inflammatory arthritis product candidate only if we receive funding from a partner or acquirer of the program.

We require additional financial resources to continue our operations past the second quarter of 2009. In April 2009, we further reduced our staff as the result of our inability to obtain additional funding in the first quarter of 2009. Unless we raise

 

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additional capital by the end of the second quarter of 2009, we expect to begin the process of ceasing operations, seeking bankruptcy protection or otherwise winding up our business. Even if we are able to extend our cash horizon, if we do not receive sufficient additional funding before we reach the end of our financial resources, we will nevertheless be forced to cease operations, seek bankruptcy protection or otherwise wind up our business.

Our current operating strategy is to carefully steward our available funds to advance our three primary programs while leveraging our development and manufacturing capabilities and intellectual property assets into additional capital-raising opportunities. Key to this strategy is the completion of a manufacturing campaign of cGMP materials for a Phase III clinical trial of MYDICAR® under our agreement with Celladon, both for the cash that it provides to support 2009 operations and for the value generated for us through fulfilling this contractual commitment. Our current work plan with Celladon extends through July 2009.

We must secure additional financial resources before the end of the second quarter of 2009 in order to continue our operations. Our near-term financing strategy includes leveraging our development and manufacturing capabilities and intellectual property assets into additional capital raising opportunities, and seeking capital through a wide variety of sources, including accessing the public and private capital markets and pursuing potential strategic transactions. In the capital markets today there is extreme competition for capital to fund biotechnology businesses that do not have product sales and do not have later stage products showing high levels of efficacy in Phase II clinical trials. Moreover, in the biotechnology industry there is a low level of success in clinical trials and our ability to raise capital depends in part on clinical trial success.

We are currently evaluating additional sources of financing that could involve one or more of the following, although we have been unable to secure additional financing notwithstanding our considerable efforts to date:

 

   

strategic transactions, including mergers and acquisitions;

 

   

selling or licensing our technology, product candidates or other assets;

 

   

entering into additional product development or manufacturing collaborations;

 

   

extending or expanding our current collaborations; and/or

 

   

issuing equity or debt in the public or private markets.

Additional funding may not be available to us on reasonable terms, if at all. The capital markets have been experiencing extreme volatility and disruption for over a year, and the volatility and disruption have reached unprecedented levels in recent months. The scope and extent of this disruption in the capital markets could make it difficult or impossible to raise additional capital in public or private capital markets until conditions stabilize and conditions may not stabilize in the very short amount of time we have left before we reach the end of our financial resources and are forced to go out of business.

 

Item 4T. Controls and Procedures

Evaluation of disclosure controls and procedures. Based on our management’s evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this quarterly report, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective in ensuring that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

Changes in internal control over financial reporting. There was no change in our internal control over financial reporting that occurred during the period covered by this quarterly report that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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This excerpt taken from the TGEN 10-K filed Mar 31, 2009.

Liquidity and Capital Resources

We had cash and cash equivalents of $5.2 million at December 31, 2008, compared to $16.4 million at December 31, 2007 and $6.2 million at December 31, 2006. The decrease in our cash and cash equivalents in 2008 primarily reflected our net loss from operations and the resulting cash used in operations of $10.3 million, capital purchases of $738,000 and the final payment of our Biogen note payable of $258,000. The increase in our cash and cash equivalents in 2007 primarily reflected net proceeds of $26.0 million from our January 2007 and June 2007 sales of our common stock, partially offset by our net loss in 2007 and the resulting cash used in operations of $13.9 million, loan repayments of $1.4 million on our Biogen Idec debt and our equipment financing arrangements and cash used for capital purchases of $554,000.

Our primary sources of capital are public and private sales of our equity securities and cash payments received from our collaborative partners and through proceeds from the issuance of debt. To a lesser degree, we have also financed our operations through interest earned on our cash and loan funding under equipment leasing agreements and, in the last two years, through license revenue. These financing sources have historically allowed us to maintain adequate levels of cash and cash equivalents but, particularly in the current market environment, they may not continue to do so. Our primary expenses are related to the development of our research and development programs, the conduct of preclinical studies and clinical trials and general and administrative support for these activities.

Most of our revenue has been derived under collaborative research and development agreements relating to the development of our potential product candidates. We do not expect the revenue

 

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generated from our current or future collaborative research and development and manufacturing arrangements to be sufficient to fully fund the development and commercialization of our product candidates. As a result, we do not expect to generate ongoing positive cash flow from our operations for the foreseeable future and our ability to generate any sustained positive cash flow is dependent upon our success at developing and commercializing our product candidates.

We will require substantial additional financial resources to continue our operations and to fund development and commercialization our three primary product development programs, which are LCA, HD and ALS. We will continue later-stage development of our inflammatory arthritis product development only if we receive funding from a partner.

In November 2008, we reported that we had changed our product development focus to include only LCA, HD and ALS. During 2008, we spent approximately $488,000 on these programs to support research and development activities and to support LCA clinical trial costs. We currently are not reimbursed for any costs we incur to advance our HD or LCA product development efforts and we must partially self-fund our ALS product development efforts. Unless we receive additional funding to support our operations in 2009, we expect to spend less than $500,000 on these programs, largely for patent prosecution support, licensing costs and expenses for research supplies. We fund these costs from our working capital and expect to do so for the foreseeable future, although our strategy is to ultimately seek a partner to fund later-stage development of at least one of these programs.

Our operating cash flows are primarily influenced by our losses from operations, net of the effect of non-cash items such as stock-based compensation, depreciation and amortization of our property and equipment, accounts receivable, deferred revenue and restructure activity. Depreciation and amortization charges for 2008 were $516,000, compared to $602,000 in 2007 and $720,000 in 2006. The decrease in 2008 as compared to 2007 and 2006 primarily reflects lower depreciation on laboratory equipment. Stock-based compensation expense was $718,000 in 2008, compared to $966,000 in 2007 and $861,000 in 2006. Accounts receivable at December 31, 2008 was $317,000, which decreased from $2.6 million at December 31, 2007 due to the timing of cash received. Cash provided by deferred revenue activity in 2008 compared to cash used in 2007 and in 2006 reflects higher levels of pre-funded work in 2008 under our collaborative agreements. Substantially all of our deferred revenue at December 31, 2008 and 2007 is related to the heart failure collaboration with Celladon. The net decrease in our restructure reserve of $553,000 in 2008 was due to rent payments offset by accretion. In 2007 and 2006, increases in our restructure reserve, offset by payments of rent for our Bothell facility, resulted in net increases of $766,000 in 2007 and $228,000 in 2006.

Our $259,000 in cash used for financing activities in 2008 represented $259,000 of loan repayments, including the final payment of $258,000 to Biogen Idec. In 2007 we made $1.4 million of loan payments, including $1.3 million to Biogen Idec and $26,000 of equipment financing payments, and in 2006 we made $1.2 million of loan payments, including $1.0 million to Biogen Idec and $155,000 of equipment financing payments.

Sales of the shares of our common stock contributed significantly to our cash flows from financing activities in both 2007 and in 2006. Our financial results in 2007 include approximately $26.0 million of proceeds as a result of the sale of 8.9 million shares of our common stock and our 2006 financial results include approximately $4.8 million of proceeds as a result of the sale of 1.3 million shares of our common stock. We sold no stock in 2008.

Our current operating strategy is to carefully steward our available funds to advance our three primary programs while leveraging our development and manufacturing capabilities and intellectual property assets into additional capital-raising opportunities. Key to this strategy is the completion of a manufacturing campaign of cGMP materials for a Phase III clinical trial of MYDICAR® under our agreement with Celladon, both for the cash that it provides to support 2009 operations and for the value generated for us through fulfilling this contractual commitment.

 

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We believe that our current financial resources and the cash we expect to receive from our collaborative partners and grants will only be sufficient to fund our operations through the second quarter of 2009. This estimate is based on our ability to successfully perform planned activities and the receipt of expected funding under our collaborations and grants, and actual results could differ from our estimates. Unless we raise additional capital by early in the second quarter of 2009, we will further reduce our staff and suspend some or all of our self-funded product development efforts, including our self-funded portion of the LCA and HD programs, to further extend our cash horizon and, if we do not receive additional funding, we will be required to cease our operations.

EXCERPTS ON THIS PAGE:

10-Q
May 7, 2009
10-K
Mar 31, 2009
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