**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

**Form 10-Q**

 
| ý | **Quarterly  report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of  1934** |
|--------|------------------------------------------------------------------------------------------------|

 

**FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002**

 

**or**

 
| o | **Transition report pursuant to Section 13 or 15 (d)  of the Securities Exchange Act of 1934** |
|---|------------------------------------------------------------------------------------------------|

 

**For the transition period from              to**

 

**CommissionFile Number 0-29993**

 

**INTRABIOTICS PHARMACEUTICALS, INC.**

(Exact name of Registrantas specified in its charter)

 
| **DELAWARE**                                                    | **94-3200380**                           |
|-----------------------------------------------------------------|------------------------------------------|
| (State or other  jurisdiction of incorporation or organization) | (I.R.S. Employer  Identification Number) |
|                                                            |                                     |
|                                                            |                                     |
| **1245  TERRA BELLA AVENUE**                                    |
| **MOUNTAIN  VIEW, CA 94043**                                    |
| (Address of principal  executive offices)                       |
|                                                            |                                     |
| **(650)  526-6800**                                             |
| (Registrant’s telephone  number including area code)       |

 

Indicate by check mark whether the Registrant (1) hasfiled all reports required to be filed by Section 13 or 15 (d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter 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 ý                    No o

 

There were 37,539,029 shares of the Company’s CommonStock, par value $.001, outstanding as of May 10, 2002.

 

 

----

 

INTRABIOTICS PHARMACEUTICALS,INC.

 

FORM 10-Q

QUARTER ENDED MARCH 31,2002

 

TABLE OF CONTENTS

 

 
| PART I.    | FINANCIAL INFORMATION                                                                                     |
|------------|-----------------------------------------------------------------------------------------------------------|
|       |                                                                                                      |
| Item 1.    | Financial Statements  (unaudited)                                                                         |
|       |                                                                                                      |
|       | Condensed Balance Sheets as of  March 31, 2002 and December 31, 2001                                      |
|       |                                                                                                      |
|       | Condensed Statements  of Operations for the Three -Month Periods Ended March 31, 2002 and March 31,  2001 |
|       |                                                                                                      |
|       | Statements of Cash Flows for  the Three -Months Periods Ended March 31, 2002 and March 31, 2001           |
|       |                                                                                                      |
|       | Notes to  Condensed Financial Statements                                                                  |
|       |                                                                                                      |
| Item  2.   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations               |
|       |                                                                                                      |
| Item  3.   | Quantitative  and Qualitative Disclosure About Market Risk                                                |
|       |                                                                                                      |
| PART II    | OTHER  INFORMATION                                                                                        |
|       |                                                                                                      |
| Item  2.   | Changes  in Securities and Use of Proceeds                                                                |
|       |                                                                                                      |
| Item 6.    | Exhibits and  Reports on Form 8-K                                                                         |
|       |                                                                                                      |
| SIGNATURES |

 

2

----

 

Part I.        Financial Information

Item I.           FinancialStatements

 

INTRABIOTICS PHARMACEUTICALS,INC.

CONDENSED BALANCE SHEETS

(IN THOUSANDS)

 
|                                                      |   | **MARCH  31,  2002** |   | **DECEMBER  31,  2001** |   |
|-----------------------------------------------------------|--------|----------------------|--------|-------------------------|--------|
|                                                      |   | **(Unaudited)**      |   | **(Note 1)**            |   |
| **Assets**                                                |   |                 |   |                    |   |
| Current assets:                                           |   |                 |   |                    |   |
| Cash and cash equivalents                                 |   | $                    | 38,226 |                    | $      | 27,982 |   |
| Restricted cash deposits                                  |   | 7,488                |   | 7,488                   |   |
| Other current assets,  primarily prepayments and deposits |   | 4,502                |   | 5,412                   |   |
| Total current assets                                      |   | 50,216               |   | 40,882                  |   |
|                                                      |   |                 |   |                    |   |
| Property and equipment, net                               |   | 1,347                |   | 1,540                   |   |
| Other assets                                              |   | 43                   |   | 43                      |   |
| Total assets                                              |   | $                    | 51,606 |                    | $      | 42,465 |   |
|                                                      |   |                 |   |                    |   |
| **Liabilities  and Stockholders' Equity**                 |   |                 |   |                    |   |
| Current liabilities:                                      |   |                 |   |                    |   |
| Accounts payable                                          |   | $                    | 68     |                    | $      | 339 |   |
| Accrued clinical costs                                    |   | 2,525                |   | 1,663                   |   |
| Accrued employee  liabilities                             |   | 260                  |   | 579                     |   |
| Accrued restructuring  charges                            |   | 2,273                |   | 2,861                   |   |
| Deferred rent                                             |   | 697                  |   | 618                     |   |
| Other accrued liabilities                                 |   | 571                  |   | 818                     |   |
| Current financing  obligations                            |   | 4,375                |   | 4,375                   |   |
| Total current liabilities                                 |   | 10,769               |   | 11,253                  |   |
|                                                      |   |                 |   |                    |   |
| Long-term financing  obligations                          |   | 4,531                |   | 5,000                   |   |
|                                                      |   |                 |   |                    |   |
| **Stockholders'  equity:**                                |   |                 |   |                    |   |
| Common stock                                              |   | 36                   |   | 30                      |   |
| Additional paid-in capital                                |   | 211,032              |   | 196,575                 |   |
| Deferred stock compensation                               |   | (4,066               | )      | (4,577                  | )      |
| Accumulated deficit                                       |   | (170,696             | )      | (165,816                | )      |
| Total stockholders' equity                                |   | 36,306               |   | 26,212                  |   |
| Total liabilities and  stockholders' equity               |   | $                    | 51,606 |                    | $      | 42,465 |   |

 

Seeaccompanying notes.

 

3

----

 

INTRABIOTICSPHARMACEUTICALS, INC

CONDENSED STATEMENTS OFOPERATIONS

(INTHOUSANDS, EXCEPT PER SHARE AMOUNTS)

 

(UNAUDITED)

 
|                                                         |   | **THREE MONTHS ENDED  MARCH 31,** |   |
|--------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                         |   | **2002**                          |   | **2001** |   |
|                                                         |   |                              |   |   |   |
| Operating expenses:                                          |   |                              |   |   |   |
| Research and development                                     |   | $                                 | 7,041  |   | $ | 15,524 |   |
| Arbitration settlement                                       |   | (3,600                            | )      | — |   |
| General and administrative                                   |   | 1,460                             |   | 4,108 |   |
| Restructuring and other  charges                             |   | 91                                |   | — |   |
| Total operating expenses                                     |   | 4,992                             |   | 19,632 |   |
|                                                         |   |                              |   |   |   |
| Operating loss                                               |   | (4,992                            | )      | (19,632 | ) |
|                                                         |   |                              |   |   |   |
| Interest income                                              |   | 265                               |   | 1,227 |   |
| Interest expense                                             |   | (153                              | )      | (308 | ) |
| Net loss                                                     |   | $                                 | (4,880 | ) | $ | (18,713 | ) |
|                                                         |   |                              |   |   |   |
| Basic and diluted net loss  per share                        |   | $                                 | (0.14  | ) | $ | (0.64 | ) |
|                                                         |   |                              |   |   |   |
| Shares used to compute  basic and diluted net loss per share |   | 33,782                            |   | 29,260 |   |

 

Seeaccompanying notes.

 

4

----

 

INTRABIOTICS PHARMACEUTICALS,INC.

STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

 

(UNAUDITED)

 
|                                                                         |   | **THREE MONTHS ENDED MARCH 31,** |   |
|------------------------------------------------------------------------------|--------|----------------------------------|--------|
|                                                                         |   | **2002**                         |   | **2001** |   |
| **Operating  activities**                                                    |   |                             |   |   |   |
| Net loss                                                                     |   | $                                | (4,880 | ) | $ | (18,713 | ) |
|                                                                         |   |                             |   |   |   |
| Adjustments to reconcile  net loss to net cash used in operating activities: |   |                             |   |   |   |
| Amortization of deferred  stock compensation                                 |   | 488                              |   | 649 |   |
| Depreciation and  amortization                                               |   | 193                              |   | 462 |   |
| Stock compensation expense                                                   |   | 140                              |   | — |   |
|                                                                         |   |                             |   |   |   |
| Change in assets and  liabilities                                            |   |                             |   |   |   |
| Other current assets                                                         |   | 910                              |   | (292 | ) |
| Accounts payable                                                             |   | (271                             | )      | 390 |   |
| Accrued clinical costs                                                       |   | 862                              |   | 820 |   |
| Accrued employee  liabilities                                                |   | (319                             | )      | 366 |   |
| Accrued restructuring  charges                                               |   | (588                             | )      | — |   |
| Deferred rent                                                                |   | 79                               |   | — |   |
| Other accrued liabilities                                                    |   | (247                             | )      | 167 |   |
| Net cash used in operating  activities                                       |   | (3,633                           | )      | (16,151 | ) |
|                                                                         |   |                             |   |   |   |
| **Investing  activities**                                                    |   |                             |   |   |   |
| Capital expenditures                                                         |   | —                           |   | (3,370 | ) |
| Maturities of short-term  investments                                        |   | —                           |   | 22,130 |   |
| Net cash provided by  investing activities                                   |   | —                           |   | 18,760 |   |
|                                                                         |   |                             |   |   |   |
| **Financing  activities**                                                    |   |                             |   |   |   |
| Proceeds from issuance of  common stock, net of issuance cost                |   | 14,346                           |   | 30 |   |
| Proceeds from financing  obligations                                         |   | —                           |   | 1,209 |   |
| Payments on financing  obligations                                           |   | (469                             | )      | (909 | ) |
| Net cash provided by  financing activities                                   |   | 13,877                           |   | 330 |   |
|                                                                         |   |                             |   |   |   |
| Net increase in cash and  cash equivalents                                   |   | 10,244                           |   | 2,939 |   |
|                                                                         |   |                             |   |   |   |
| Cash and cash equivalents  at beginning of period                            |   | 27,982                           |   | 38,983 |   |
|                                                                         |   |                             |   |   |   |
| Cash and cash equivalents  at end of period                                  |   | $                                | 38,226 |   | $ | 41,922 |   |
|                                                                         |   |                             |   |   |   |
| Supplemental disclosure of  cash flow information                            |   |                             |   |   |   |
| Interest paid                                                                |   | $                                | 153    |   | $ | 308 |   |
|                                                                         |   |                             |   |   |   |
| Supplemental disclosure of  non-cash information                             |   |                             |   |   |   |
| Deferred compensation  (termination)                                         |   | $                                | (23    | ) | $ | (183 | ) |

 

See accompanying notes.

 

5

----

 

INTRABIOTICSPHARMACEUTICALS, INC.

NOTES TO CONDENSEDFINANCIAL STATEMENTS

 

(Unaudited)

 

Note 1. Basis of Presentation

 

The accompanying condensed financial statements areunaudited and have been prepared by the Company in accordance with the rulesand regulations of the Securities and Exchange Commission for interim financialinformation, and in accordance with the instructions to Form 10-Q and Article 10of Regulation S-X.

 

Certain information and footnote disclosures normallyincluded in the Company’s annual audited financial statements (as required bygenerally accepted accounting principles) have been condensed or omitted.  The interim financial statements, in theopinion of management, reflect all adjustments (consisting of normal recurringaccruals) necessary for a fair statement of the Company’s financial position asof March 31, 2002 and December 31, 2001, and the results of its operations andcash flows for the three -month periods ended March 31, 2002 and 2001.

 

The results of operations of the interim periods arenot necessarily indicative of the results of operations to be expected for thefiscal year.  These interim financialstatements should be read in conjunction with the audited financial statementsfor the year ended December 31, 2001, which are contained in the Company’sAnnual Report on Form 10-K, and filed with the Securities and ExchangeCommission.  The accompanying condensedBalance Sheet as of December 31, 2001 is derived from such audited financialstatements.

 

Comprehensive loss is primarily comprised of net lossand net unrealized gains or losses on available-for-sale securities.  There is no material difference between thereported net loss and the comprehensive loss for all periods presented.

 

Note 2. Lease Commitments and Equipment Financing Arrangements

 

The Company leases its facilities under operatinglease agreements, which expire in July 2004 and April 2011. At March 31, 2002 andDecember 31, 2001, the Company has restricted cash of $2.0 million inconnection with these leases.

 

 

Note 3 Net Loss Per Common Share

 

Net loss per share has been computed according toFinancial Accounting Standards Board Statement No. 128, “Earnings Per Share”,which requires disclosure of basic and diluted earnings per share.  Basic and diluted earnings per share iscalculated using the weighted-average number of shares of common stockoutstanding during the period, less shares subject to repurchase.  Diluted earnings per share include theimpact of potentially dilutive securities. As the Company’s potentially dilutive securities (stock options andwarrants) were antidilutive for all periods, they were not included in thecomputation of weighted-average shares used in computing diluted net loss pershare.

 

The following is a reconciliation of the numerator anddenominator of basic and diluted net loss per share (in thousands, except pershare amounts):

 

6

----

 
|                                                                            |   | **THREE MONTHS ENDED  MARCH 31,** |       |
|---------------------------------------------------------------------------------|--------|-----------------------------------|------------|
|                                                                            |   | **2002**                          | ** ** | **2001** |   |
|                                                                            |   | **(UNAUDITED)**                   |       |
| Basic and diluted:                                                              |   |                              |       |   |   |
| Net loss                                                                        |   | $                                 | (4,880     | ) | $ | (18,713 | ) |
|                                                                            |   |                              |       |   |   |
| Weighted-average shares  used in computing basic and diluted net loss per share |   | 33,782                            |       | 29,260 |   |
|                                                                            |   |                              |       |   |   |
| Basic and diluted net loss  per share                                           |   | $                                 | (0.14      | ) | $ | (0.64 | ) |

 

Note 4. Restructuring and Other Charges

 

On May 31, 2001, the Company implemented arestructuring plan intended to conserve capital and help direct financial andhuman resources to the development of its lead product, iseganan HCl oralsolution for the reduction in incidence and severity of oral mucositis incancer patients. The Company recorded restructuring charges of approximately$10.1 million and asset write down charges of approximately $11.8 million, fora total of approximately  $21.9 millionin charges associated with its restructuring plan in the second quarter of2001. The $10.1 million restructuring charge was for costs incurred in workforce reduction, the termination of collaboration agreements and facilitiesconsolidation.

 

The strategic restructuring included a reduction inforce of approximately 90 positions in research and administration, or 71% ofthe Company’s previous workforce of 127 employees.  All of the terminated employees have left the Company as ofDecember 31, 2001.  During the quarterended March 31, 2002, the Company received a refund of approximately $75,000for workman’s compensation related to the terminated employees.  No remaining severance amounts are payableas of March 31, 2002.

 

The restructuring also includes the terminations ofcertain research and development collaborations and the consolidation ofoperations into one existing facility in Mountain View, California.  The estimated costs associated withterminated collaboration agreements were increased by $166,000 in the quarterended March 31, 2002.  There is $150,000remaining payable for such agreements and costs.

 

The Company vacated three facilities in Mountain View,California comprising 142,000 square feet and continues to occupy one facilitywith 16,000 square feet.  One of thevacated facilities has been sub-leased during 2001, and another was taken backby the landlord, with no continuing obligation to the Company.  At March 31, 2002, $2,123,000 remains in accruedrestructuring charges related to this facility, representing nine months ofrent and expenses associated with the lease on the facility, based on theCompany’s best estimate of the period for which the facility will remain vacantprior to sub-lease.  The Company expectsto incur the remaining restructuring obligation over the next nine months.

 

 

The restructuring charges consist of the following (in thousands):

 
|                                                |   | **Costs for  Terminated  Employees** | ** ** | **Facilities  Consolidations** | ** ** | **Terminated  collaboration  agreements  and other** | ** ** | **Total** |   |
|-----------------------------------------------------|--------|--------------------------------------|------------|--------------------------------|------------|------------------------------------------------------|------------|-----------|--------|
| Accrued restructuring  charges at December 31, 2001 |   | $                                    | —     |                           | $          | 2,861                                                |       | $         | — |   | $ | 2,861 |   |
|                                                |   |                                 |       |                           |       |                                                 |       |      |   |
| Activity for the quarter  ended March 31, 2002:     |   |                                 |       |                           |       |                                                 |       |      |   |
| Cash refunds (payments)                             |   | 75                                   |       | (738                           | )          | (16                                                  | )          | (679      | )      |
| Adjustment to reflect  revised estimates            |   | (75                                  | )          | —                         |       | 166                                                  |       | 91        |   |
| Accrued restructuring  charges at March 31, 2002    |   | $                                    | —     |                           | $          | 2,123                                                |       | $         | 150    |   | $ | 2,273 |   |

 

7

----

 

Note 5.  Stockholders’ Equity

 

On February 1, 2002, the Company sold 5,900,000 sharesof common stock in a private placement resulting in net proceeds ofapproximately $13.9 million.

 

Note 6.  Arbitration Settlement

 

The arbitration between IntraBiotics and the contractvendor relating to a drug dispensing error in iseganan HCI oral solution phaseIII clinical trials was resolved amicably in January 2002.  The Company received $3.6 million in thesettlement.

 

Note 7.  Subsequent Events

 

In April 2002, the Company acquired Apothogen, Inc.for 450,000 shares of its common stock.  Concurrently with the closing of the merger, Ernest Mario, Ph.D.joined the Company as Chairman and Chief Executive Officer and purchased$5,000,000 of newly issued shares of our common stock in a private placement ata purchase price per share equal to the closing bid price as reported on theNasdaq National Market on April 23, 2002.

 

In April 2002, the Company modified its loan agreementwith Silicon Valley Bank (SVB). Modifications to the original agreement dated August 2001 includedchanges to the covenants.

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS

 

*Thefollowing Management’s Discussion and Analysis of Financial Condition andResults of Operations contains forward-looking statements, which involve risks,uncertainties and assumptions.  TheCompany’s actual results could differ materially from those anticipated inthese forward-looking statements as a result of many factors, including, butnot limited to, those set forth under “RISKS RELATED TO OUR BUSINESS”below.  The following discussion shouldbe read in conjunction with the financial statements and notes includedelsewhere herein and the Company’s 2001 audited financial statements and notesthereto included in its 2001 Annual Report on Form 10-K.  All forward looking statements included inthis document are based on information available to us on the date of thisdocument, and except as required by law, IntraBiotics assume no obligation toupdate any of the forward-looking statements contained in this report toreflect any future events or developments.*

 

###### **Overview**

 

IntraBiotics Pharmaceuticals, Inc. is abiopharmaceutical company focused on developing and commercializing high-valueanti-infectives and oncology therapeutics. We have initiated expanded human clinical trials to test for efficacyand safety, known as phase III trials, for iseganan HCl oral solution, for thereduction in the incidence and severity of ulcerative oral mucositis, a sideeffect of anti-cancer therapies.

 

The top-line results of our 545-patient Phase IIIclinical trial of iseganan HCl oral solution, to treat patients undergoingradiotherapy to prevent or reduce ulcerative oral mucositis showed nosignificant difference between iseganan and placebo in the primary or secondaryend-points.  The group of patients whoreceived iseganan and the group of patients who received placebo didsignificantly better than the group of patients who received only the standardof care on both the primary and secondary endpoints.  We are still in the process of fully analyzing and evaluatingthese data and full results will be presented at the Annual Meeting of theAmerican Society for Clinical Oncology. We are also currently enrolling patients in a phase III trial forpatients undergoing aggressive chemotherapy, and assuming that enrollment inthe trial progresses according to plan, we expect to announce results of thattrial no later than the fourth quarter of 2002.

 

8

----

 

We have also completed two earlier stage trials forother indications of iseganan HCl to prevent pneumonia in patients requiringbreathing assistance from a mechanical ventilator and to treat respiratoryinfections in patients with cystic fibrosis. The data from each of these trials support the advancement to the nextstage of human clinical testing for each of these two products.

 

Since commencing operations in 1994, we have notgenerated any revenue from product sales, and we have funded our operationsprimarily through the private sale of equity securities, funds received from aterminated collaboration agreement, the proceeds of equipment financingarrangements and our initial public offering of common stock in March2000.  During the quarter ended March31, 2002, we completed a private placement of 5.9 million shares of commonstock resulting in net proceeds of $13.9 million and in April, 2002, ErnestMario, Ph.D. purchased approximately 1.25 million shares of common stockresulting in net proceeds of $5 million. We have incurred a loss in each yearsince inception, and we expect to incur substantial losses for at least thenext several years.  We expect thatlosses may fluctuate, and that such fluctuations may be substantial.  As of March 31, 2002, the Company’saccumulated deficit was approximately $170.7 million.  We will need to raise additional funds in the future to continueour operations.

 

In April 2002, the Company acquired Apothogen, Inc.for 450,000 shares of its common stock. Concurrently with the closing of the merger, Ernest Mario, Ph.D. joinedthe Company as Chairman and Chief Executive Officer.

 

RESULTS OF OPERATIONS

 

### *Three -month periods ended March 31, 2002 and 2001*

 

IntraBiotics had no product sales or contract revenuefor the three-month periods ended March 31, 2002 and 2001.  We do not anticipate any product revenue inthe near future.

 

Research and development expenses consist of costsrelated to our current phase III clinical trials for iseganan HCl oralsolution.  Research and developmentexpenses decreased to $7.0 million in the three-month period ended March 31,2002 from $15.5 million for the same period in 2001.  The decrease is as a result of our May 2001 restructuring.  Research and development costs for thequarter ended March 31, 2002 were related to the iseganan HCl for theprevention of oral mucositis program, and include costs for salaries forresearch and development personnel, contractor and clinical trial site fees,building and equipment costs, supplies, administrative expenses and allocationsof corporate costs.  During the quarter,approximately 70% of research and development expenses were for variouscontractor, consultant and clinical trial site fees.  Included in research and development are non-cash stockcompensation charges of $281,000 and $376,000 for the period ended March 31,2002, and 2001 respectively.

 

The arbitration between us and the contract vendorrelating to a drug dispensing error in iseganan HCI oral solution phase IIIclinical trials was resolved amicably in January 2002.  We received $3.6 million in the settlement.

 

General and administrative expenses decreased to $1.5million in the three-month period ended March 31, 2002 from $4.1 million forthe same period in 2001, primarily as a result of our restructuring in2001.  These costs include salaries foradministrative personnel, outside contractors, legal fees, accounting fees,building and equipment costs, supplies and general administrative expenses.

 

We expensed $488,000 of deferred compensation duringthe three-month period ended March 31, 2002, compared to $649,000 for the sameperiod in 2001.  The decrease indeferred compensation expense was due to the cancellation of options forterminated employees.  These amountswere expensed to research and development and to general and administrativeexpense based on the deferred compensation liability attributed to eachdepartment.  The research anddevelopment deferred compensation expense in the three-month period ended March31, 2002 decreased to $281,000 from $376,000 for the same period in 2001.  The general and administrative deferredcompensation expense in the three-month period ended March 31, 2002 decreasedto $207,000 from $273,000 for the same period in 2001.  Deferred compensation represents thedifference between the deemed fair value of the common stock for financialreporting purposes and the 

 

9

----

 

exercise price of theseoptions at the date of grant.  Deferredcompensation is presented as a reduction of stockholders’ equity and isamortized over the vesting period of the applicable options. 

 

On May 31, 2001, we implemented a restructuring planintended to conserve capital and help direct financial and human resources tothe development of its lead product, iseganan HCl oral solution for thereduction in incidence and severity of oral mucositis in cancer patients. Werecorded restructuring charges of approximately $10.1 million and asset writedown charges of approximately $11.8 million, for a total of approximately  $21.9 million in charges associated with ourrestructuring plan in the second quarter of 2001. The $10.1 millionrestructuring charge was for costs incurred in work force reduction, thetermination of collaboration agreements and facilities consolidation.

 

The strategic restructuring included a reduction inforce of approximately 90 positions in research and administration, or 71% ofour previous workforce of 127 employees. All of the terminated employees have left the Company as of December 31,2001.  During the quarter ended March31, 2002, we received a refund of approximately $75,000 for workman’scompensation related to the terminated employees.  No remaining severance amounts are payable as of March 31, 2002.

 

The restructuring also includes the terminations ofcertain research and development collaborations and the consolidation ofoperations into one existing facility in Mountain View, California. Theestimated costs associated with terminated collaboration agreements wereincreased by $166,000 in quarter ended March 31, 2002.  There is $150,000 remaining payable for suchagreements and costs. 

 

We vacated three facilities in Mountain View,California comprising 142,000 square feet and continue to occupy one facilitywith 16,000 square feet.  One of the vacatedfacilities has been sub-leased during 2001, and another was taken back by thelandlord, with no continuing obligation to us. At March 31, 2002, $2,123,000 remains in accrued restructuring chargesrelated to this facility, representing nine months of rent and expensesassociated with the lease on the facility, based on our best estimate of theperiod for which the facility will remain vacant prior to sub-lease.  We expect to incur the remainingrestructuring obligation over the next nine months.

 

Interest income decreased to $265,000 in thethree-month period ended March 31, 2002 from $1.2 million for the same periodin 2001.  The decrease in interestincome resulted from the decrease in average cash and investment balancesprimarily due to our phase III trials and lower interest rates.  Interest expense decreased to $153,000 forthe three-month period ended March 31, 2002, from $308,000 for the same periodin 2001.  The decrease was primarilyattributed to a reduction of outstanding loan balances and a lower interestrate on our remaining debt.

 

LIQUIDITY AND CAPITAL RESOURCES

 

At March 31, 2002, we had cash and cash equivalents of$45.7 million, including restricted cash deposits of approximately $2.0 millionin connection with standby letters of credit for leased facilities, $3.0million for guarantees of product supplies and $2.5 million supporting our lineof credit as well as approximately $8.9 million of debt to Silicon ValleyBank.  We regularly invest excess fundsin short-term money market funds.

 

On February 1, 2002, we sold 5.9 million shares ofcommon stock in a private placement resulting in net cash proceeds ofapproximately $13.9 million.  In January2002, we also received $3.6 million in settlement of our arbitration with acontract vendor relating to a drug dispensing error in our phase III clinicaltrials.

 

Net cash used in operating activities for thethree-month periods ended March 31, 2002 and 2001 was $3.6 million and $16.2million, respectively.  Cash used inoperating activities in the three-month periods ended March 31, 2002 and 2001were primarily the result of net losses.

 

Net cash provided by investing activities for thethree-month periods ended March 31, 2002 and 2001 was zero and $18.8 million,respectively.  There were no investingactivities for the period ended March 31, 2002.  Cash provided by investing activities in the three-month periodended March 31, 2001

 

10

----

 

was due to the maturities of short-term investments of $22.1 millionpartially offset by capital expenditures of $3.4 million for equipment.

 

Net cash provided by financing activities for thethree-month periods ended March 31, 2002 and 2001 was $13.9 million and$330,000, respectively. Cash provided by financing activities for thethree-month period ended March 31, 2002 was from net proceeds of $14.3 millionin a private placement of 5.9 million shares of common stock and from theissuance of common stock through the exercise of stock options, partiallyoffset by $469,000 in payments on financing obligations. Cash provided byfinancing activities for the three-month period ended March 31, 2001, was from$1.2 million in proceeds from financing obligation and $30,000 from theissuance of common stock, partially offset by $909,000 of payments on financingobligations.

 

In August 2001, we entered into a line of credit of$2.5 million and a term loan agreement of $7.5 million with Silicon ValleyBank.  In April 2002, the term loanagreement was modified, which included changes to the financial covenants.  At March 31, 2001, the balance drawn on theline of credit was $2.5 million and the term loan agreement was utilized andhad a balance due of approximately $6.4 million.

 

We expect to continue to incur substantial operatinglosses.  We believe that existingcapital resources and interest income will be sufficient to fund our operationsfor at least the next 12 months.

 

Our future capital requirements will depend on manyfactors, including:

 

• the timing,cost, extent and results of clinical trials;

 

• payments tothird parties for manufacturing scale up;

 

• the costsand timing of regulatory approvals;

 

• the costs ofacquiring technologies or assets that compliment our business;

 

• the costs ofestablishing sales, marketing and distribution capabilities;

 

• the progressof our development activities;

 

• availabilityof technology in-licensing opportunities; and

 

• futureopportunities for raising capital.

 

Until we can generate sufficient cash from ouroperations, which we do not anticipate in the foreseeable future, we will needto finance future cash needs through private and public financings, includingequity financings. We cannot be certain that additional funding will beavailable when needed or on favorable terms. If funding is not available, wemay need to delay or curtail our development and commercialization activitiesto a significant extent.

 

**RISKS RELATED TO OUR BUSINESS**

 

*Ourbusiness faces significant risks and the risks described below may not be theonly risks we face.  Additional risksthat we do not know of or that we currently believe are immaterial may alsoimpair our business operations.  If anyof the events or circumstances described in the following risks actuallyoccurs, our business, financial condition, or results of operations could bematerially adversely affected and the trading price of our common stock coulddecline.*

 

**We expect to continue to incur futureoperating losses and may never achieve profitability.**

 

We have never generated revenue from product sales andhave incurred significant net losses in each year since inception. We incurrednet losses of  $23.1 million in 1999,$45.6 million in 2000, $67.4 million in 2001 and $4.9 million in the quarter endedMarch 31, 2002.  As of March 31, 2002,our accumulated deficit was approximately $170.7 million. We expect to continueto incur substantial additional losses for the foreseeable future primarily asa result of increases in clinical trial costs, and we may never becomeprofitable. In addition, we expect to incur further costs to commercializeiseganan HCl oral solution.   To date,we have financed our operations primarily through the private sale of equitysecurities, funds received from a terminated collaboration agreement, theproceeds of equipment financing arrangements, our initial

 

11

----

 

public offering of common stock in March 2000 and private placements ofcommon stock during the quarter ended March 31, 2002 and in April 2002. We willreceive product revenues only if we complete clinical trials with respect toone or more products, receive regulatory approvals and successfullycommercialize such products.

 

**We may be forced to raisecapital sooner than currently anticipated and if we fail to obtain the capitalnecessary to fund our operations, we will be unable to develop our drugcandidates and may have to cease operations.**

** **

We believe that our cash balances and cash equivalentsnet of restricted cash of approximately $38.2 million, at March 31, 2002, inaddition to approximately $5.0 million received in April 2002, will besufficient to meet our operating and capital requirements for at least the next12 months.   However, we have based thisestimate on assumptions that may prove to be wrong.   For the years endedDecember 31, 1999, 2000 and 2001, net cash used for operating activities was$25.1 million, $50.4 million, and $53.6 million, respectively.   In May 2001, we implemented a restructuringplan in order to conserve our cash reserves.  Our future liquidity and capital requirements will depend on manyfactors, including the timing, delay, cost, extent and results of clinicaltrials, payments associated with manufacturing scale-up, the costs and timingof regulatory approvals, the costs of establishing sales, marketing anddistribution capabilities and costs associated with researching drugcandidates, securing in-licensing opportunities and conducting preclinicalresearch.

 

We believe that additional financing will be requiredin the future to fund our operations. We do not know whether additionalfinancing will be available when needed or on acceptable terms, if at all. Ifwe are unable to raise additional financing when necessary, we may have todelay some or all of our product development efforts or be forced to ceaseoperations.   Any additional equityfinancing may be dilutive to stockholders, and debt financing, if available,may involve restrictive covenants.  Collaborative arrangements may require us to relinquish our rights tocertain of our technologies, drug candidates or marketing territories.

 

**We depend on the outcomeof our clinical trials and if they are unsuccessful, we may not be able tocommercialize our products and generate product revenue.**

** **

Before obtaining regulatory approvals for thecommercial sale of any products, we must demonstrate through preclinicalresearch and clinical trials that our drug candidates are safe and effectivefor use in humans. If we are unable to demonstrate the safety and efficacy ofiseganan HCl oral solution in phase III clinical trials, we may be unable toobtain regulatory approval from the FDA or to commercialize the drug candidate,and we will be unable to generate product revenue from that candidate for thatindication. Clinical trials are expensive and time-consuming to conduct, andthe timing and outcome of these trials is uncertain. A number of new drugs haveshown promising results in clinical trials, but subsequently failed toestablish sufficient safety and efficacy data to obtain necessary regulatoryapprovals. A number of companies have suffered significant setbacks in advancedclinical trials, even after promising results in earlier trials.  In May 2002, we announced that our clinicaltrial of iseganan HCl oral solution to treat patients undergoing radiotherapyto prevent or reduce oral mucositis had failed to demonstrate any differencebetween iseganan and placebo in the primary or secondary end-points. While weare still analyzing the data, we believe that iseganan does not provide clinicalbenefit for these patients. As a result, we intend to pursue the development ofiseganan HCl oral solution only for patients undergoing chemotherapy and otherformulations of iseganan in ventilator-assisted pneumonia and cystic fibrosis.

 

In addition, if we have delays in clinical trials orthe FDA approval process or if we need to perform more or larger clinicaltrials, our product development costs will increase and our ability to generateproduct revenue will be delayed.  Forexample, in January 2001, we discovered that a contract vendor dispensedplacebo and active drug in error to approximately one-third of the patients inour phase III clinical trail for iseganan HCl oral solution.  As a result, we are conducting an additionalphase III clinical trial, which has delayed our FDA approval process.

 

Our commencement and completion of clinical trials maybe delayed by many factors, including:

 

12

----

 

•      slower than expected rate of patientrecruitment;

•      inability to adequately obtain data aboutpatients after their treatment;

•       additional regulatory requests;

•      inability to manufacture sufficientquantities of materials used for clinical trials; or

•      unforeseen safety issues.

 

If the delays are substantial, the increase in productdevelopment expenses could cause our losses to increase and diminish thecommercial potential for our drug candidates.

 

**If our collaborativepartners assisting in our clinical trials fail to appropriately manage ourclinical trials, the trials could be delayed or could fail.**

** **

We rely on contract research organizations, includingPharmaNet, Inc., to assist us in managing and monitoring our clinical trials.The FDA may inspect some of our clinical investigational sites, our collaborativepartner’s records and our facility and files to determine if the clinicaltrials were conducted according to good clinical practices. If the FDAdetermines that the trials were not in compliance with good clinical practices,we may be required to repeat the clinical trials. If our contract researchorganizations fail to perform under our agreements with them, we may facedelays in completing our clinical trials or failure of our clinical program.

 

In January 2001, an error on the part of one of our subcontractorsthat was managing the drug dispensing led to a dispensing error in both of ourphase III clinical trials of iseganan HCl oral solution. We believe that as aresult of this error, the clinical trial failed to demonstrate the efficacy ofiseganan HCl oral solution for the reduction in incidence and severity of oralmucositis in patients receiving chemotherapy at the levels of statisticalsignificance typically required by the FDA. As a result, we are conducting an additional phase III clinical trialand our timing for the FDA approval process has been delayed.

 

**Ifour single-source third party manufacturers fail to produce clinical orcommercial quantities of our drug candidates, we may not have sufficientquantities of our drug candidates to meet demand.**

** **

We rely on asingle source of contract manufacturers, PolyPeptide Laboratories A/S andPatheon, Inc., to manufacture the bulk drug substance and formulated drugproduct on a commercial scale, respectively. While we maintain a limitedinventory of our drug, we depend on contract manufacturers to produce ourproducts for use in our clinical trials. Our contract manufacturers havelimited experience in manufacturing iseganan HCl in quantities sufficient forcommercialization and may have difficulty in scaling up production. If ourcontract manufacturers are unable or fail to produce the required quantities ofiseganan HCl for clinical use or commercial sale on a timely basis, atcommercially reasonable prices and with sufficient purity, we will not havesufficient quantities to complete current and future clinical trials, or tomeet commercial demand.

 

Our third-party manufacturers and we are required toregister manufacturing facilities with the FDA and foreign regulatoryauthorities. If these facilities become unavailable for any reason or if ourcontract manufacturers fail to comply with the FDA’s current good manufacturingpractices or if our contract manufacturers terminate their agreements with us,we would have to find an alternative source for manufacturing our drugcandidates. There are, on a worldwide basis, a limited number of contractfacilities in which our drug candidates can be produced according to currentgood manufacturing practice regulations. In addition, the manufacturingprocesses for iseganan HCl are extremely complex and proprietary. If we areunable to continue having iseganan manufactured by our current contractmanufacturers, we do not know if we could engage another contract manufacturerwhen needed or on acceptable terms, if at all.

 

13

----

 

**If we fail to obtain FDAapprovals for our products, we will be unable to commercialize our drugcandidates.**

** **

We do not have a drug candidate approved for sale inthe U.S. or any foreign market. We must obtain approval from the FDA in orderto sell our drug candidate in the U.S. and from foreign regulatory authoritiesin order to sell our drug candidate in other countries. We must successfullycomplete our phase III clinical trial and demonstrate manufacturing capabilitybefore we can file with the FDA for approval to sell our products. The FDAcould require us to repeat clinical trials as part of the regulatory reviewprocess. Delays in obtaining or failure to obtain regulatory approvals may:

 

**•**      delayor prevent the successful commercialization of our drug candidate;

 

•      diminish our competitive advantage; and

 

•      defer or decrease our receipt of revenuesor royalties.

 

The regulatory review and approval process is lengthy,expensive and uncertain. Extensive preclinical and clinical data and supportinginformation must be submitted to the FDA for each indication to establishsafety and effectiveness in order to secure FDA approval. We have limitedexperience in obtaining such approvals, and cannot be certain when, if ever, wewill receive these regulatory approvals.

 

In addition to initial regulatory approval, our drugcandidate will be subject to extensive and rigorous ongoing domestic andforeign government regulation.   Anyapprovals, once obtained, may be withdrawn if compliance with regulatoryrequirements is not maintained or safety problems are identified. Failure tocomply with these requirements may subject us to stringent penalties.

 

**Development andcommercialization of competitive products could reduce or prevent sales of ourproducts and reduce revenue.**

** **

We may be unable to compete successfully if othercompanies develop and commercialize competitive products that are lessexpensive, more effective, have fewer side effects or are easier to administerthan our drug candidate. If we are unable to compete successfully with our drugcandidate, physicians may not recommend and patients may not buy our drug,which would cause our product revenue to decline.

 

There are several drugs commercially available orunder development that might compete with iseganan HCl oral solution.   There is one approved device, Radiacare®,and several drugs in early stage clinical trials for prevention or treatment oforal mucositis. These include one antimicrobial agent, triclosan, and twogrowth factors, keratinocyte growth factor and keratinocyte growthfactor-2.   GM-CSF is also underdevelopment in radiotherapy-induced oral mucositis.   The companies sponsoring these trials have successfullycommercialized products in the past. In addition, there may be products underdevelopment of which we are unaware for the prevention or the treatment of oralmucositis.

 

Many of our competitors and related private and publicresearch and academic institutions have substantially greater experience,financial resources and larger research and development staffs than we do. Inaddition, many of these competitors, either alone or together with theircollaborative partners, have significantly greater experience than we do indeveloping drugs, obtaining regulatory approvals and manufacturing andmarketing products. We also compete with these organizations and othercompanies for in-licensing opportunities for future drug candidates, and forattracting scientific and management personnel.

 

**Ifwe are unable to adequately protect our intellectual property, we may be unableto sell our products or to compete effectively.**

 

We rely on acombination of patents, trade secrets and contractual provisions to protect ourintellectual property. If we fail to adequately protect our intellectualproperty, other companies or individuals may 

 

14

----

 

prevent us from selling our products or may develop competing productsbased on our technology. Our success depends in part on our ability to:

 

•      obtain patents;

 

•      protect trade secrets;

 

•      operate without infringing upon theproprietary rights of others; and

 

•      prevent others from infringing on ourproprietary rights.

 

We will be able to protect our proprietary rights fromunauthorized use by third parties only to the extent that our proprietaryrights are covered by valid and enforceable patents or are effectivelymaintained as trade secrets.

 

We try to protect our proprietary position by filingU.S. and foreign patent applications related to our proprietary technology,inventions and improvements that are important to the development of ourbusiness. For example, we own or have rights to nine patents and five pendingpatent applications in the U.S . However, the patent position ofbiopharmaceutical companies involves complex legal and factual questions. Wecannot predict the enforceability or scope of any issued patents or those thatmay issue in the future. Patents, if issued, may be challenged, invalidated orcircumvented. Consequently, if any patents that we own or license from thirdparties do not provide sufficient protection, our competitive position would beweakened. Furthermore, others may independently develop similar technologies orduplicate any technology that we have developed.   In addition, we may not be issued patents for our pending patentapplications, those we may file in the future, or those we may license fromthird parties.

 

In addition to patents, we rely on trade secrets andproprietary know-how.   Our contractmanufacturers perform the manufacturing processes covered by these tradesecrets. Accordingly, our contract manufacturers and we must maintainconfidentiality. We have confidentiality and proprietary information agreementswith our contract manufacturers and with our employees. These agreements maynot provide meaningful protection or adequate remedies for our technology inthe event of unauthorized use or disclosure of confidential and proprietaryinformation.

 

**Wemay be subject to intellectual property litigation that could be costly andtime-consuming.**

** **

The biotechnologyand pharmaceutical industries have been characterized by extensive litigationregarding patents and other intellectual property rights.   Although we are not currently a party toany lawsuits, third parties may assert infringement or other intellectualproperty claims against us. We may have to pay substantial damages, includingtreble damages, for past infringement if it is ultimately determined that ourproducts infringe a third party’s proprietary rights. The defense andprosecution of intellectual property suits, U.S. Patent and Trademark Officeinterference proceedings and related legal and administrative proceedings inthe U.S and internationally are costly and time-consuming to pursue and theiroutcome is uncertain. If we become involved in any of these proceedings, wewill incur substantial expense and the efforts of our technical and managementpersonnel will be significantly diverted. An adverse determination may resultin the invalidation of our patents, subject us to significant liabilities orrequire us to seek licenses that may not be available from third parties onsatisfactory terms, or at all. Our stock price could decline based on anypublic announcements related to litigation or interference proceedingsinitiated or threatened against us.

 

15

----

 

**Ifphysicians and patients do not accept our products, we may be unable togenerate significant revenue, if any.**

** **

Our drug candidatemay not gain market acceptance among physicians, patients and the medicalcommunity. If our drug candidate fails to achieve market acceptance, we may beunable to successfully market and sell the product, which would limit ourability to generate revenue. The degree of market acceptance of any drugcandidate depends on a number of factors, including:

 

•      demonstration of clinical efficacy andsafety;

 

•      cost-effectiveness;

 

•      convenience and ease of administration;

 

•      potential advantage over alternativetreatment methods; and

 

•      marketing and distribution support.

 

Physicians will not recommend our products until suchtime as clinical data or other factors demonstrate the safety and efficacy ofour drugs as compared to other treatments. In practice, competitors may be moreeffective in marketing their drugs. Even if the clinical safety and efficacy ofour product is established, physicians may elect not to recommend its use. Forexample, physicians may be reluctant to prescribe widespread use of ourproducts because of concern about developing bacterial strains that areresistant to our drugs, or because of the cost of our drug.

 

**If we are unable toestablish sales, marketing and distribution capabilities or enter intoagreements with third parties to perform these services, we will be unable tocommercialize our drug products.**

** **

We do not currently have marketing, sales ordistribution capabilities. Initially we intend to establish a direct marketingand sales force in the U.S. and Canada.  We intend to enter into arrangements with third parties to market andsell most of our products outside of the U.S. and Canada.   If we fail to establish successfulmarketing and sales capabilities or fail to enter into successful marketingarrangements with third parties, we would be unable to commercialize these drugproducts. We must develop a marketing and sales force with technical expertiseand distribution capabilities to market any of our products directly.   To the extent that we enter into marketingand sales arrangements with other companies, our revenues will be lower than ifwe marketed the products directly.

 

**Thefailure to recruit and retain key personnel may delay our ability to complete,develop and commercialize iseganan HCl oral solution.**

** **

We are highlydependent on our management and technical staff. Competition for personnel isintense. If we lose the services of any of our senior management, we may bedelayed in our product development and commercialization efforts. We do notmaintain key person life insurance and do not have employment agreements withour management and technical staff. In order to pursue product development,marketing and commercialization plans, we will need to hire additionalqualified scientific personnel to perform research and development.   We will also need to hire personnel withexpertise in clinical testing, government regulation, manufacturing, marketingand finance. We may not be able to attract and retain personnel on acceptableterms given the competition for such personnel among biotechnology,pharmaceutical and other companies.

 

In addition, we rely on consultants to assist us informulating our research and clinical development strategy. All of ourconsultants are employed by other entities. They may have commitments to, orrelationships with, other entities that may limit their availability to us. Theloss of the services of these personnel may delay our research and developmentefforts.

 

16

----

 

**Directors, executiveofficers, principal stockholders and affiliated entities own a portion of ourcapital stock and may be able to exert control over our activities.**

** **

Our directors, executive officers, principalstockholders and affiliated entities beneficially own, in the aggregate,approximately 38% of our outstanding common stock. These stockholders, ifacting together, may be able to significantly influence any matters requiringapproval by our stockholders, including the election of directors and theapproval of mergers or other business combination transactions.

 

**Antitakeoverprovisions in our charter documents and under Delaware law may make anacquisition of us more difficult.**

** **

Provisions of ourcertificate of incorporation and bylaws could make it more difficult for athird party to acquire us, even if doing so would be beneficial to ourstockholders.

 

These provisions:

 

•      provide for a classified board ofdirectors of which approximately one third of the directors will be electedeach year;

 

•      allow the authorized number of directorsto be changed only by resolution of the board of  directors;

 

•      require that stockholder actions must beeffected at a duly called stockholder meeting and prohibit stockholder actionby written consent;

 

•      establish advance notice requirements fornominations to the board of directors or for proposals that can be acted on atstockholder meetings; and

 

•      limit who may call stockholder meetings.

 

In addition, because we are incorporated in Delaware,we are governed by the provisions of Section 203 of the Delaware GeneralCorporation Law which may prohibit large stockholders from consummating amerger with or acquisition of us. These provisions may prevent a merger oracquisition that would be attractive to stockholders and could limit the pricethat investors would be willing to pay in the future for our common stock.

 

**Our stock price may bevolatile, and the value of your investment may decline.**

 

The market prices for securities of biotechnologycompanies in general have been highly volatile and our stock may be subject tovolatility. The following factors, in addition to the other risk factorsdescribed in this section, may have a significant impact on the market price ofour common stock:

 

• announcements of technological innovations or newcommercial products by our competitors or us;

 

• developments concerning proprietary rights;

 

• publicity regardingactual or perceived adverse events in our clinical trials or relating toproducts under development by our competitors;

 

• regulatory developments in the United States orforeign countries;

 

• litigation;

 

• significant short selling in our common stock;

 

17

----

 

• economic andother external factors; and

 

•period-to-period fluctuations in our financial results and changes in analysts’recommendations.

 

18

----

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 

The primary objective of our investment activities isto preserve our capital until it is required to fund operations at the sametime maximizing the income we receive from our investments withoutsignificantly increasing risk.  Wecurrently have all of our funds in money market fund, which is sensitive tominimal market risk.  Due to theshort-term nature of this investment, a 50 basis point movement in marketinterest rates would not have a material impact on the fair value of ourinvestment as of March 31, 2002 and the fiscal years December 31, 2001 and2000. We have no investments denominated in foreign country currencies andtherefore our investments are not subject to foreign currency exchange risk.

 

19

----

 

PART II OTHERINFORMATION

 

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

 

On February 1, 2002, we sold 5.9 million shares ofnewly issued shares of our common stock in a private placement at a purchaseprice of $2.50 per share to selected institutional and private investors, whichresulted in net cash proceeds of approximately $13.9 million to be used forworking capital and other general corporate purposes.  We issued the shares of common stock in reliance upon anexemption from the registration requirements of the Securities Act by virtue ofSection 4(2) thereof and Regulation D promulgated thereunder.  We filed a registration statement on FormS-3 (No. 333-82934) pursuant to the Securities Act of 1933, as amended, withthe Securities and Exchange Commission related to the resale of the securities.

 

The Company’s registration statement on Form S-1 (No.333-95461) filed pursuant to the Securities Act of 1933, as amended, wasdeclared effective on March 27, 2000. The Company incurred related offeringcosts of approximately $9.2 million during the year ended December 31, 2000, ofwhich $7.9 million represented underwriting discounts and commissions. Allinitial public offering costs were direct or indirect payments to others. Thenet offering proceeds to the Company after all expenses were approximately$103.3 million, and the balance of these proceeds is being used to fundclinical trials, the development and scale up of manufacturing processes by ourcontract manufacturers, research and development activities and other workingcapital and other general corporate purposes.

 

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

 

(a)           List of Exhibits

 
| **Number** |   | **Exhibit Description**                                                                                                                                                                                                                                                                                                      |
|------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                                                                         |
| 3.1        |   | Amended and Restated Certificate of Incorporation, incorporated by reference from the indicated exhibit to the Company’s Registration Statement on Form S-1 (No. 333-95461) initially filed with the Securities and Exchange Commission on January 27, 2000, as amended.                                                |
| 3.2        |   | Bylaws,  incorporated by reference from the indicated exhibit to the Company’s  Registration Statement on Form S-1 (No. 333-95461) initially filed with the  Securities and Exchange Commission on January 27, 2000, as amended.                                                                                        |
| 4.3        |   | Form of  Stock Purchase Agreement by and between the Company and each selling  stockholder, dated January 29, 2002, incorporated by reference from the  indicated exhibit to the Company’s Registration Statement on Form S-3 (No.  333-82934) filed with the Securities and Exchange Commission on February 15,  2002. |
| 4.4        |   | Letter  Agreement by and among the Company and signatories thereto, dated April 23,  2002.                                                                                                                                                                                                                                   |

 

(b)           Reports on Form 8-K

 

The Companyfiled a Current Report on Form 8-K on January 22, 2002 reporting under Item 5that   arbitration proceedings relatingto a contractor error, which affected two clinical trials of iseganan HCl forthe prevention of oral mucositis, had been amicably resolved and, in connectionwith that resolution, the Company received a payment of $3.6 million.

 

The Companyfiled a Current Report on Form 8-K on January 30, 2002 announcing under Item 5it had entered into definitive purchase agreements to sell approximately 5.9million shares of newly issued common stock in a private placement to selectedinstitutional and private investors, and that the private

 

20

----

 

placement is expected toraise net proceeds of approximately $13.9 million, subject to customary closingconditions.

 

The Companyfiled a Current Report on Form 8-K on March 20, 2002 announcing under Item 5that the results of its second phase III clinical trial of iseganan HCl oralsolution, for the reduction of incidence of ulcerative oral mucositis inpatients receiving radiation therapy for treatment of head and neck cancer, hasbeen accepted for an oral presentation at the upcoming American Society ofClinical Oncology meeting in Orlando, Florida on Tuesday, May 21, 2002.  The Company also announced that it hasfinalized its plans for statistical analysis of the two clinical trials basedon input from the FDA.

 

The Companyfiled a Current Report on March 29, 2002  reporting under Item 5 that it was refiling its Management’s Discussion& Analysis of Financial Condition and Results of Operations contained inits Annual Report on Form 10-K filed with the Securities and ExchangeCommission on February 15, 2002, in order to provide additional disclosure inthe MD&A section, as suggested by the Commission pursuant to SEC ReleasesNo. 33-8056 and No. 33-8040.

 

21

----

 

SIGNATURES

 

 

Pursuant tothe requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 
|   |          |   | IntraBiotics  Pharmaceuticals, Inc.                         |
|--------|---------------|--------|-------------------------------------------------------------|
|   |          |   |                                                        |   |
|   |          |   | /s/ Henry  J. Fuchs M.D.                                    |   |
|   | May 15,  2002 |   | Henry J.  Fuchs M.D.  President and Chief Operating Officer |
|   |          |   |                                                        |
|   |          |   |                                                        |   |
|   |          |   | /s/ Eric  H. Bjerkholt                                      |   |
|   | May 15,  2002 |   | Eric H.  Bjerkholt  Chief Financial Officer                 |
|   |          |   |                                                        |
|        |               |        |                                                             |  |  |

 

22