================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-19635
GENTA INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CERTIFICATE OF INCORPORATION)
Delaware 33-0326866
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
Two Connell Drive
Berkeley Heights, NJ 07922
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(908) 286-9800
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--------- ---------
As of May 10, 2002, the registrant had 66,712,413 shares of common
stock outstanding.
GENTA INCORPORATED
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets at March 31, 2002
and December 31, 2001 3
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 2002 and 2001 4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2002 and 2001 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
GENTA INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
(In thousands, except per share data) 2002 2001
----------- ---------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 24,738 $ 38,098
Short-term investments 8,774 15,988
Notes receivable 203 236
Other current assets 3,504 707
--------- ---------
Total current assets 37,219 55,029
Property and equipment, net 2,086 1,848
Intangibles, net 1,923 2,120
Other assets 1,686 1,633
--------- ---------
Total assets $ 42,914 $ 60,630
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,156 $ 9,571
Accrued expenses 1,314 2,309
Other current liabilities 435 440
--------- ---------
Total current liabilities 5,905 12,320
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, Series A convertible preferred stock, $.001 par value;
5,000,000 shares authorized, 261,000 shares issued and
outstanding at March 31, 2002 and December 31, 2001, respectively;
liquidation value of $13,050 -- --
Common stock, $.001 par value; 95,000,000 shares authorized,
66,619,168 and 66,000,210 shares issued and outstanding at
March 31, 2002 and December 31, 2001, respectively 67 66
Additional paid-in capital 249,826 248,685
Accumulated deficit (211,288) (198,662)
Deferred compensation (1,474) (1,713)
Accumulated other comprehensive loss (122) (66)
--------- ---------
Total stockholders' equity 37,009 48,310
--------- ---------
Total liabilities and stockholders' equity $ 42,914 $ 60,630
========= =========
See accompanying notes to condensed consolidated financial statements
3
GENTA INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED MARCH 31,
--------------------------------
(In thousands, except per share data) 2002 2001
-------------- --------------
Revenues:
License fees .................................................. $ 5 $ 70
Costs and expenses:
Research and development ...................................... 9,837 5,656
General and administrative .................................... 2,802 1,372
Promega settlement ............................................ -- 1,000
Compensation expense related to stock options ................. 238 152
-------------- --------------
12,877 8,180
-------------- --------------
Loss from operations ............................................. (12,872) (8,110)
Other income, principally net interest income .................... 246 651
-------------- --------------
Net loss applicable to common shares ............................. $ (12,626) $ (7,459)
============== ==============
Net loss per common share ........................................ $ (0.19) $ (0.15)
============== ==============
Shares used in computing net loss per common share ............... 66,525 51,132
============== ==============
See accompanying notes.
4
GENTA INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED MARCH 31,
-------------------------
(In thousands) 2002 2001
-------- --------
Operating activities
Net loss $(12,626) $ (7,459)
Items reflected in net loss not requiring cash:
Depreciation and amortization 362 251
Loss on disposition of patents and equipment 10 2
Loss on Promega settlement -- 1,000
Compensation expense related to stock options 238 152
Changes in operating assets and liabilities, net (9,232) (472)
-------- --------
Net cash used in operating activities (21,248) (6,526)
-------- --------
INVESTING ACTIVITIES
Purchase of available-for-sale short-term investments -- (11,304)
Maturities and sales of available-for-sale short-term investments 7,158 6,982
Purchase of property and equipment (413) (189)
-------- --------
Net cash used in investing activities 6,745 (4,511)
-------- --------
FINANCING ACTIVITIES
Proceeds from exercise of warrants and options 1,143 392
-------- --------
Net cash provided by financing activities 1,143 392
-------- --------
Decrease in cash and cash equivalents (13,360) (10,645)
Cash and cash equivalents at beginning of period 38,098 19,025
-------- --------
Cash and cash equivalents at end of period $ 24,738 $ 8,380
======== ========
See accompanying notes
5
GENTA INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(UNAUDITED)
(1) BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements of Genta
Incorporated, a Delaware corporation ("Genta" or the "Company"), presented
herein have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial information and
with the instructions to Form 10-Q. Accordingly, they do not include all of the
information and note disclosures required to be presented for complete financial
statements. The accompanying financial statements reflect all adjustments
(consisting only of normal recurring accruals), which are, in the opinion of
management, necessary for a fair presentation of the results for the interim
periods presented.
The unaudited condensed consolidated financial statements and related
disclosures have been prepared with the presumption that users of the interim
financial information have read or have access to the audited financial
statements for the preceding fiscal year. Accordingly, these financial
statements should be read in conjunction with the audited consolidated financial
statements and the related notes thereto included in the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 2001.
The Company has experienced significant quarterly fluctuations in
operating results and it expects that these fluctuations will continue.
Net Loss Per Common Share
Basic and diluted loss per common share are identical for the three
months ended March 31, 2002 and 2001 as potentially dilutive securities,
including options, warrants and convertible preferred stock have been excluded
in the calculation of the net loss per common share due to their anti-dilutive
effect.
Recent Accounting Pronouncements
In August 2001, the FASB issued Statement of Financial Accounting
Standards 143 ("SFAS 143"), "Accounting for Asset Retirement Obligations". SFAS
143 requires that the liability for an asset retirement obligation should be
recognized at its fair market value when these liabilities are incurred. SFAS
143 will be effective for fiscal years beginning after June 15, 2002 and the
Company intends to adopt the provisions of SFAS 143 as of the effective date but
does not expect SFAS 143 to have a material effect on the Company's financial
position or results of operations.
(2) SHORT-TERM INVESTMENTS
All corporate debt securities at March 31, 2002, mature within one year
or less. Information in the aggregate with respect to these investments is
presented below (in thousands):
Gross Gross
unrealized unrealized Estimated
Amortized costs gains losses fair value
--------------- ---------- ---------- ----------
$ 8,896 $ 70 $ 192 $ 8,774
=============== ========== ========== ==========
(3) OTHER CURRENT ASSETS
Included in other current assets at March 31, 2002 is a deposit of
$2.75 million in connection with a purchase commitment for clinical drug
supplies, scheduled for delivery during 2002.
6
(4) COMPREHENSIVE LOSS
An analysis of comprehensive loss is presented below (in thousands):
Three Months Ended March 31,
----------------------------
2002 2001
---------- ---------
Net loss $(12,626) $ (7,459)
Change in market value change on available-for-sale
short-term investments (56) 126
---------- ---------
Total comprehensive loss $(12,682) $ (7,333)
========== =========
(5) SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION AND NON-CASH
INVESTING AND FINANCING ACTIVITIES
Three Months Ended March 31,
----------------------------
2002 2001
----- ----
Market value change of available-for-sale equity - (3)
securities....................
Market value change of available-for-sale short-term (56) 129
investments............
No interest was paid for the three months ended March 31, 2002 and
2001.
(6) DISCONTINUED OPERATIONS
On March 19, 1999, the Company entered into an Asset Purchase Agreement
(the "JBL Agreement") with Promega Corporation ("Promega"), whereby a wholly
owned subsidiary of Promega acquired substantially all of the assets and assumed
certain liabilities of the Company's manufacturing subsidiary, JBL Scientific,
Inc. ("JBL"), for approximately $4.8 million in cash, a promissory note for $1.2
million, and certain pharmaceutical development services in support of the
Company's development activities. The sale of JBL was completed on May 10, 1999
and a gain on sale of approximately $1.6 million was recognized during the
quarter ended June 30, 1999.
During May 2000, Promega notified Genta regarding two claims against
Genta and its wholly-owned subsidiary, Genko Scientific, Inc. (f/k/a JBL
Scientific, Inc.) ("Genko"), for indemnifiable damages in the aggregate amount
of $2.82 million under the JBL Agreement. Promega announced that it intended to
offset against the principal amount due under its $1.2 million promissory note
issued as partial consideration for the Genko assets, which note provided for
payment of $.7 million on June 30, 2000. Promega further demanded an additional
$1.62 million in settlement of this matter. Genta believed that Promega's claims
were without merit and, accordingly, on October 16, 2000, Genta filed suit in
the US District Court of California for nonpayment on the $1.2 million
promissory note plus accrued interest. On November 6, 2000, Promega filed a
counter suit against the Company in the US District Court of California for the
indemnifiable damages discussed above. During the first quarter of 2001, the
Company agreed to resolve the matter with Promega, and, in connection therewith,
has agreed to restructure its $1.2 million promissory note receivable to provide
for a $.2 million non-interest bearing note due to be repaid by Promega upon
final resolution of certain environmental issues related to JBL and forgive all
accrued interest. The transaction resulted in a non-recurring charge of $1.0
million for the quarter ended March 31, 2001.
7
(7) COMMITMENTS AND CONTINGENCIES
LITIGATION AND POTENTIAL CLAIMS
JBL
In October 1996, JBL retained a chemical consulting firm (the
"Consulting Firm") to advise it with respect to an incident of soil and
groundwater contamination (the "Spill"). Sampling conducted at the JBL facility
revealed the presence of chloroform and perchloroethylenes ("PCEs") in the soil
and groundwater at this site. A semi-annual groundwater monitoring program was
conducted, under the supervision of the California Regional Water Quality
Control Board, for purposes of determining whether the levels of chloroform and
PCEs had decreased over time. The results of the latest sampling conducted by
JBL indicated that PCEs and chloroform had decreased in all but one of the
monitoring sites. Based on the information provided to the Company by the
Consulting Firm, the Company accrued $.065 million relating to remedial costs in
1999. Pursuant to the JBL agreement the Company has agreed to indemnify Promega
in respect of this matter. In November 2001, the Company received from the
California Regional Water Quality Control Board notification on the completion
of site investigation and remedial action for these sites and that no further
action related to this case is required.
JBL received notice on October 16, 1998 from Region IX of the
Environmental Protection Agency ("EPA") that it had been identified as a
potentially responsible party ("PRP") at the Casmalia Disposal Site, which is
located in Santa Barbara, California. JBL has been designated as a de minimis
PRP by the EPA. Based on volume amounts from the EPA, the Company concluded that
it was probable that a liability had been incurred and accrued $.075 million
during 1998. In 1999, the EPA estimated that the Company would be required to
pay approximately $.063 million to settle their potential liability. In December
2001, Genta received a revised settlement proposal from the EPA in the amount of
$.033 million, the terms of the settlement with the EPA containing standard
contribution protection and release language. In January 2002, the Company
accepted the proposal and settled this matter.
GENTA EUROPE
During 1995, Genta Pharmaceuticals Europe S.A. ("Genta Europe"), a
wholly-owned subsidiary of Genta, received funding in the form of a loan from
ANVAR, a French government agency, in the amount of FF5.4 million (or
approximately US$.716 million at March 31, 2002) with a scheduled maturity of
December 31, 2002. Pursuant to the loan agreement with ANVAR, the utilization of
the proceeds was intended to fund research and development activities. In
October 1996, in connection with a restructuring of Genta's operations, Genta
terminated all scientific personnel of Genta Europe. In February 1998, ANVAR
asserted that Genta Europe was not in compliance with the ANVAR Agreement, and
that ANVAR might request immediate repayment of the loan. In July 1998, ANVAR
notified Genta Europe of its demand for accelerated repayment of the loan in the
amount of FF4.2 million (or approximately US$.557 million at March 31, 2002) and
subsequently notified us that Genta was liable as a guarantor on the note. Based
on the advice of French counsel, we do not believe that ANVAR is entitled to
payment under the terms of the ANVAR Agreement and also believe it to be
unlikely that Genta will incur any liability in this matter, although there can
be no assurance thereof.
In June 1998, Marseille Amenagement, a company affiliated with the city
of Marseilles, France, filed suit in France to evict Genta Europe from its
facilities in Marseilles and to demand payment of alleged back rent due and of a
lease guarantee for nine years rent. Following the filing of this claim and in
consideration of the request for repayment of the loan from ANVAR, Genta
Europe's Board of Directors directed the management to declare a "Cessation of
Payment." Under this procedure, Genta Europe ceased operations and terminated
its only remaining employee. A liquidator was appointed by the Court to take
control of any assets of Genta Europe and to make payment to creditors. In
December 1998, the Court in Marseilles dismissed the case against Genta Europe
and indicated that it had no jurisdiction against Genta Incorporated. In August
1999, Marseille Amenagement instituted legal proceedings against Genta in the
Commercial Court of Marseilles, alleging back rent and early termination
receivables aggregating FF2.5 million (or approximately US$.332 million at March
31, 2002). On October 8, 2001,
8
the Commercial Court of Marseilles rendered their decision which declared the
action brought by Marseille Amenagement as admissible and ordered Genta to pay
an amount of FF1.9 million (or approximately US$.252 million at March 31, 2002).
The Company does not believe that Marseille Amenagement is entitled to payment
and it is currently considering whether to appeal this decision or negotiate
with Marseille Amenagement to achieve a mutually satisfactory resolution.
At March 31, 2002, the Company has accrued a net liability of $.350
million related to the liquidated subsidiary and related matters, which
management believes is adequate to provide for these contingencies.
PURCHASE COMMITMENTS
At April 25, 2002, the Company was obligated for $14.5 million under
firm commitments for drug substance purchases during 2002.
(8) SUBSEQUENT EVENT
Effective April 26, 2002 Genta entered into a development and
commercialization agreement with Aventis Pharmaceuticals Inc. ("Aventis") (NYSE:
AVE). Under the terms of the agreement, Genta and Aventis will jointly develop
and co-market Genasense(TM) in the United States, and Aventis will have
exclusive development and marketing rights to the compound in all countries
outside of the U.S. Genta will retain responsibility for global manufacturing
and for regulatory filings within the U.S., while Aventis will assume all
regulatory responsibilities outside the U.S. Joint management teams, including
representatives from both partners, will oversee the Alliance. Collectively,
this agreement will provide up to $480 million in cash, equity and convertible
debt proceeds to Genta as well as royalties on worldwide sales of Genasense(TM).
In addition, Aventis will fund 75% of all future NDA-directed development costs
in the U.S., and 100% of all other development, marketing, and sales costs
within the U.S. and elsewhere. Genta will receive a total of $135 million in
initial and near-term consideration including $10 million as a licensing fee,
$40 million as development fees, $10 million in convertible debt proceeds, and
$75 million pursuant to an equity investment upon achievement of a near-term
clinical milestone. Genta will receive an additional $280 million in cash, and
$65 million in convertible note proceeds, pursuant to achievement of certain
clinical and regulatory milestones.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Since its inception in February 1988, the Company has devoted its
principal efforts toward drug discovery and research and development. The
Company has been unprofitable to date and expects to incur substantial operating
losses for the next several years due to continued requirements for ongoing
research and development activities, preclinical and clinical testing
activities, regulatory activities, possible establishment of manufacturing
activities and a sales and marketing organization. From the period since its
inception to March 31, 2002, the Company has incurred a cumulative net loss of
approximately $211.3 million. The Company has experienced significant quarterly
fluctuations in operating results and it expects that these fluctuations in
revenues, expenses and losses will continue.
This Quarterly Report on Form 10-Q includes forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, including
statements regarding the expectations, beliefs, intentions or strategies
regarding the future. Without limiting the foregoing, the words "anticipates,"
"believes," "expects," "intends," "may" and "plans" and similar expressions are
intended to identify forward-looking statements. The Company intends that all
forward-looking statements be subject to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements reflect the Company's views as of the date they are made with respect
to future events, but are subject to many risks and uncertainties, which could
cause the actual results of the Company to differ materially from any future
results expressed or implied by such forward-looking statements. For example,
the results obtained in pre-clinical or clinical studies may not be indicative
of results that will be obtained in future clinical trials, and delays in the
initiation or completion of clinical trials may occur as a result of many
factors. Further examples of such risks and uncertainties also include, but are
not limited to: the obtaining of sufficient financing to maintain the Company's
planned operations; timely development, receipt of necessary regulatory
approvals, and acceptance of new products; the successful application of the
Company's technology to produce new products; the obtaining of proprietary
protection for any such technology and products; the impact of competitive
products and pricing and reimbursement policies; and changing market conditions.
The Company does not undertake to update forward- looking statements. Although
the Company believes that the forward-looking statements contained herein are
reasonable, it can give no assurances that the Company's expectations are
correct.
RESULTS OF OPERATIONS
SUMMARY OPERATING RESULTS
($ THOUSANDS) FOR THE THREE MONTHS ENDED MARCH 31,
INCREASE (DECREASE)
2002 $ % 2001
---- - - ----
Revenues:
License fees.......................... $ 5 $ (65) (93)% $ 70
Costs and expenses:
Research and development.............. 9,837 4,181 74% 5,656
General and administrative............ 2,802 1,430 104% 1,372
Promega settlement.................... -- (1,000) (100)% 1,000
Equity related compensation........... 238 86 57% 152
-------- -------- --- -------
12,877 4,697 57% 8,180
-------- -------- --- -------
Loss from operations...................... (12,872) 4,762 59% (8,110)
Other income.............................. 246 (405) (62)% 651
-------- -------- --- -------
Net loss from continuing operations....... $(12,626) $5,167 69% $(7,459)
======== ======== === =======
10
REVENUES. License fees associated with worldwide non-exclusive
licensing agreements entered into during 2001 were recognized in the first
quarter of 2002 and 2001.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
for the three months ended March 31, 2002 increased $4.181 million or 74% over
the comparable period in 2001. The increase in research and development expenses
is primarily attributable to investigator and monitor fees for current
Genasense(TM) on-going clinical studies, FDA required pre-clinical studies,
development costs relating to various compounds, and increased personnel costs.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses for the three months ended March 31, 2002 increased $1.430 million or
104% over the comparable period in 2001. The increase is primarily related to
personnel costs and increased marketing-related spending.
OTHER INCOME. Net interest income for the three months ended March 31,
2002 decreased $.405 million or 62% over the comparable period in 2001,
principally as a result of significantly lower average balances and decreased
yields on investments.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily from
private placements and public offerings of its equity securities. Cash provided
from these offerings totaled approximately $207.8 million through December 31,
2001, including net proceeds of $32.2 million received in 2001 and $40.0 million
received in 2000. At March 31, 2002, the Company had cash, cash equivalents and
short-term investments totaling $33.512 million compared to $54.086 million at
December 31, 2001.
As reflected in Note 8, effective April 26, 2002 Genta entered into a
development and commercialization agreement with Aventis Pharmaceuticals Inc.
("Aventis") (NYSE: AVE). Under the terms of the agreement, Genta and Aventis
will jointly develop and co-market Genasense(TM) in the United States, and
Aventis will have exclusive development and marketing rights to the compound in
all countries outside of the U.S. Genta will retain responsibility for global
manufacturing and for regulatory filings within the U.S., while Aventis will
assume all regulatory responsibilities outside the U.S. Joint management teams,
including representatives from both partners, will oversee the Alliance.
Collectively, this agreement will provide up to $480 million in cash, equity and
convertible debt proceeds to Genta as well as royalties on worldwide sales of
Genasense(TM). In addition, Aventis will fund 75% of all future NDA-directed
development costs in the U.S., and 100% of all other development, marketing, and
sales costs within the U.S. and elsewhere. Genta will receive a total of $135
million in initial and near-term consideration including $10 million as a
licensing fee, $40 million as development fees, $10 million in convertible debt
proceeds, and $75 million pursuant to an equity investment upon achievement of a
near-term clinical milestone. Genta will receive an additional $280 million in
cash, and $65 million in convertible note proceeds, pursuant to achievement of
certain clinical and regulatory milestones.
The Company's principal expenditures relate to its research and
development activities, which includes the Company's on-going and anticipated
clinical trials. The Company expects this to continue at an increasing rate
until the lead anti-cancer drug, Genasense(TM), is approved for
commercialization.
The Company anticipates seeking additional product development
opportunities from external sources. Such acquisitions may consume cash reserves
or require additional cash or equity. The Company's working capital and
additional funding requirements will depend upon numerous factors, including:
(i) the progress of the Company's research and development programs; (ii) the
timing and results of pre-clinical testing and clinical trials; (iii) the level
of resources that the Company devotes to sales and marketing capabilities; (iv)
technological advances; (v) the activities of competitors; and (vi) the ability
of the Company to establish and maintain collaborative
11
arrangements with others to fund certain research and development efforts, to
conduct clinical trials, to obtain regulatory approvals and, if such approvals
are obtained, to manufacture and market products.
If the Company successfully secures sufficient levels of collaborative
revenues and other sources of financing, it expects to use such financing to
continue and expand its ongoing research and development activities, preclinical
and clinical testing activities, the manufacturing and/or market introduction of
potential products and expansion of its administrative activities.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1 to the condensed consolidated financials statements.
12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not utilize financial instruments for trading purposes
and holds no derivative financial instruments, which could expose the Company to
significant market risk. The Company's primary market risk exposure with regard
to financial instruments is to changes in interest rates, which would impact
interest income earned on such instruments.
13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
JBL
In October 1996, JBL retained a chemical consulting firm (the
"Consulting Firm") to advise it with respect to an incident of soil and
groundwater contamination (the "Spill"). Sampling conducted at the JBL facility
revealed the presence of chloroform and perchloroethylenes ("PCEs") in the soil
and groundwater at this site. A semi-annual groundwater monitoring program was
conducted, under the supervision of the California Regional Water Quality
Control Board, for purposes of determining whether the levels of chloroform and
PCEs have decreased over time. The results of the latest sampling conducted by
JBL indicated that PCEs and chloroform had decreased in all but one of the
monitoring sites. Based on the information provided to the Company by the
Consulting Firm, the Company accrued $.065 million relating to remedial costs in
1999. Pursuant to the JBL agreement the Company has agreed to indemnify Promega
in respect of this matter. In November 2001, the Company received from the
California Regional Water Quality Control Board notification on the completion
of site investigation and remedial action for these sites and that no further
action related to this case is required.
JBL received notice on October 16, 1998 from Region IX of the
Environmental Protection Agency ("EPA") that it had been identified as a
potentially responsible party ("PRP") at the Casmalia Disposal Site, which is
located in Santa Barbara, California. JBL has been designated as a de minimis
PRP by the EPA. Based on volume amounts from the EPA, the Company concluded that
it was probable that a liability had been incurred and accrued $.075 million
during 1998. In 1999, the EPA estimated that the Company would be required to
pay approximately $.063 million to settle their potential liability. In December
2001, Genta received a revised settlement proposal from the EPA in the amount of
$.033 million, the terms of the settlement with the EPA containing standard
contribution protection and release language. In January 2002, the Company
accepted the proposal and settled this matter.
GENTA EUROPE
During 1995, Genta Pharmaceuticals Europe S.A. ("Genta Europe"), a
wholly-owned subsidiary of Genta, received funding in the form of a loan from
ANVAR, a French government agency, in the amount of FF5.4 million (or
approximately US$.716 million at March 31, 2002) with a scheduled maturity of
December 31, 2002. Pursuant to the loan agreement with ANVAR, the utilization of
the proceeds was intended to fund research and development activities. In
October 1996, in connection with a restructuring of Genta's operations, Genta
terminated all scientific personnel of Genta Europe. In February 1998, ANVAR
asserted that Genta Europe was not in compliance with the ANVAR Agreement, and
that ANVAR might request immediate repayment of the loan. In July 1998, ANVAR
notified Genta Europe of its demand for accelerated repayment of the loan in the
amount of FF4.2 million (or approximately US$.557 million at March 31, 2002) and
subsequently notified us that Genta was liable as a guarantor on the note. Based
on the advice of French counsel, we do not believe that ANVAR is entitled to
payment under the terms of the ANVAR Agreement and also believe it to be
unlikely that Genta will incur any liability in this matter, although there can
be no assurance thereof.
In June 1998, Marseille Amenagement, a company affiliated with the city
of Marseilles, France, filed suit in France to evict Genta Europe from its
facilities in Marseilles and to demand payment of alleged back rent due and of a
lease guarantee for nine years rent. Following the filing of this claim and in
consideration of the request for repayment of the loan from ANVAR, Genta
Europe's Board of Directors directed the management to declare a "Cessation of
Payment." Under this procedure, Genta Europe ceased operations and terminated
its only remaining employee. A liquidator was appointed by the Court to take
control of any assets of Genta Europe and to make payment to creditors. In
December 1998, the Court in Marseilles dismissed the case against Genta Europe
and indicated that it had no jurisdiction against Genta Incorporated. In August
1999, Marseille Amenagement instituted legal proceedings against Genta in the
Commercial Court of Marseilles, alleging back rent and early termination
14
receivables aggregating FF2.5 million (or approximately US$.332 million at March
31, 2002). On October 8, 2001, the Commercial Court of Marseilles rendered their
decision which declared the action brought by Marseille Amenagement as
admissible and ordered Genta to pay an amount of FF1.9 million (or approximately
US$.252 million at March 31, 2002). The Company does not believe that Marseille
Amenagement is entitled to payment and it is currently considering whether to
appeal this decision or negotiate with Marseille Amenagement to achieve a
mutually satisfactory resolution.
At March 31, 2002, the Company has accrued a net liability of $.350
million related to the liquidated subsidiary and related matters, which
management believes is adequate to provide for these contingencies.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K.
On April 29, 2002, the Company filed a Current Report
on Form 8-K disclosing a press release issued on April 29,
2002, regarding an agreement the Company entered into with
Aventis Pharmaceuticals Inc. to jointly develop and
commercialize Genasense(TM) (G3139), the Company's lead
antisense compound.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENTA INCORPORATED
(Registrant)
By: /s/ Raymond P. Warrell, Jr., M.D.
------------------------------------
Name: Raymond P. Warrell, Jr., M.D.
Title: Chairman, President, Chief Executive Officer
and Principal Executive Officer
By: /s/ Alfred J. Fernandez
----------------------------
Name: Alfred J. Fernandez
Title: Executive Vice President, Chief Financial Officer
and Principal Accounting Officer
Date: May 14, 2002
16