UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

 

Form 10-K

 

 

Commission file number: 0-21990

 

 

 

 

 

Registrant’s telephone number, including area code: (781) 547-5900

 

 

Securities registered pursuant to Section 12(g) of the Act:

None

(Title of class)

 

 

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  o      No  þ

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes  o      No  þ

 

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  þ      No  o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K.   þ

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o      No  þ

 

The aggregate market value of the registrant’s voting and non-voting common stock held by non-affiliates of the registrant (without admitting that any person whose shares are not included in such calculation is an affiliate) computed by reference to the price at which the common stock was last sold, as of June 30, 2008 was $32,982,000.

 

As of March 17, 2009, the aggregate number of outstanding shares of common stock of the registrant was 46,148,000.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Certain portions of the registrant’s definitive Proxy Statement for the 2009 Annual Meeting of Stockholders are incorporated by reference into Items 10, 11, 12, 13 and 14 of Part III of this Annual Report on Form 10-K.

 

 

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
UNDER THE SECURITIES LITIGATION REFORM ACT OF 1995

 

Except for historical information contained herein, this Annual Report on Form 10-K (“Annual Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks and uncertainties that may cause the Company’s actual results or outcomes to be materially different from those anticipated and discussed herein. Important factors that the Company believes may cause such differences are discussed in the “Risk Factors” section of this Annual Report and in the cautionary statements accompanying the forward-looking statements in this Annual Report. In assessing forward-looking statements contained herein, readers are urged to read carefully all Risk Factors and cautionary statements contained in this Annual Report. Further, the Company operates in an industry sector where securities values may be volatile and may be influenced by regulatory and other factors beyond the Company’s control.

TABLE OF CONTENTS

 

 

The Company believes these areas for potential further development collectively represent a large potential commercial market opportunity that includes cancers of the thyroid, ovary, kidney, liver, head and neck, breast, lung, skin, brain, colon and rectum.

 

In addition, based upon pre-clinical results first published by its collaborators in the November 2007 online issue of the journal BLOOD, as well as pre-clinical data to be presented in April 2009 at the annual meeting of the American Association of Cancer Research (AACR), OXiGENE believes that ZYBRESTAT and its other VDA product candidates, particularly OXi4503, may also have utility in the treatment of hematological malignancies or “liquid tumors,” such as acute myeloid leukemia.

 

In addition to developing ZYBRESTAT as an intravenously administered therapy for oncology indications, OXiGENE is undertaking an ophthalmology research and development program with ZYBRESTAT, the objective of which is to develop a topical formulation of ZYBRESTAT for ophthalmological diseases and conditions that are characterized by abnormal blood vessel growth within the eye that results in loss of vision. The Company believes that a safe, effective and convenient topically-administered anti-vascular therapeutic would have advantages over currently approved anti-vascular, ophthalmological therapeutics, which must be injected directly into patients’ eyes, in some cases on a chronic monthly basis. The Company is currently conducting pre-clinical studies and plans to initiate in the first half of 2009 at least one human clinical trial with intravenously-administered ZYBRESTAT to (i) confirm the therapeutic utility of ZYBRESTAT in an ophthalmologic indication; (ii) determine tissue concentrations of drug required for activity; and (iii) further evaluate the feasibility of developing a topical formulation of ZYBRESTAT for ophthalmological indications. To date, the Company has completed pre-clinical experiments demonstrating that ZYBRESTAT has activity in six different pre-clinical ophthalmology models, including a model in which ZYBRESTAT was combined with an approved anti-angiogenic drug. The Company has also completed multiple pre-clinical studies suggesting that ZYBRESTAT, when applied topically to the surface of the eye at doses anticipated to be tolerated and non-toxic, penetrates to the retina and choroid in quantities that the Company believes should be more than sufficient for therapeutic activity. Finally, the Company has completed and reported results at the 2007 annual meeting of the Association for Research in Vision and Ophthalmology (ARVO) from a Phase II study in patients with myopic macular degeneration in which all patients in the study met the primary clinical endpoint of vision stabilization three months after study entry.

 

In conjunction with Symphony, OXiGENE is currently evaluating a second-generation VDA product candidate, OXi4503, in a Phase I clinical trial in patients with advanced solid tumors, and based on what it believes to be compelling pre-clinical study results, plans to file an IND for this product candidate and initiate additional Phase Ib studies beginning in the first half of 2009. In pre-clinical studies, OXi4503 has shown potent anti-tumor activity against solid tumors and acute myeloid leukemia, both as a single agent and in combination with other cancer treatment modalities. The Company believes that OXi4503 is differentiated from other VDAs by its dual-action activity. OXi4503 has demonstrated potent vascular disrupting effects on tumor vasculature, as well as direct cytotoxic effects on tumor cells that arise from metabolism of the drug by oxidative enzymes, which are elevated in certain tumors and tissues, (e.g., leukemia, hepatic tumors, and melanoma) to a cytotoxic orthoquinone chemical species.

 

As described below under “— Symphony Transaction”, in October 2008, the Company announced a strategic collaboration with Symphony Capital Partners, L.P. (Symphony), a private-equity firm, under which Symphony agreed to provide up to $40,000,000 in funding to support the advancement of ZYBRETAT for oncology, ZYBRESTAT for ophthalmology and OXi4503. Under the transaction, OXiGENE granted Symphony ViDA, Inc., a newly-created drug development company, exclusive licenses to ZYBRESTAT for use in ophthalmologic indications and OXi4503. OXiGENE maintains an exclusive option, but not the obligation, to purchase the assets of Symphony ViDA Inc.

 

Finally, under a sponsored research agreement with Baylor University, the Company is pursuing discovery and development of novel, small-molecule therapeutics for the treatment of cancer, including small-molecule cathepsin-L inhibitors and hypoxia-activated VDAs. Cathepsin-L is an enzyme involved in protein degradation and has been shown to be closely involved in the processes of angiogenesis and metastasis. Small molecule inhibitors may have the potential to slow tumor growth and metastasis in a manner the Company believes

could be complementary with its VDA therapeutics. The Company also believes that its hypoxia-activated VDAs could serve as line-extension products to ZYBRESTAT and/or OXi4503.

 

Symphony Transaction

 

On October 1, 2008, OXiGENE announced a strategic collaboration with Symphony Capital Partners, L.P. (Symphony). Under this collaboration, the Company entered into a series of related agreements with Symphony Capital LLC, Symphony ViDA, Inc., or ViDA, Symphony ViDA Holdings LLC, or Holdings, and related entities, including the following:

 

 

In addition, OXiGENE entered into a series of related agreements with Holdings, including the following:

 

 

Pursuant to these agreements, Holdings has formed and capitalized ViDA, a Delaware corporation, in order (a) to hold certain intellectual property related to two of OXiGENE’s product candidates, ZYBRESTAT for use in ophthalmologic indications and OXi4503, referred to as the “Programs,” which were exclusively licensed to ViDA under the Novated and Restated Technology License Agreement and (b) to fund commitments of up to $25,000,000. The funding will support pre-clinical and clinical development by OXiGENE, on behalf of ViDA, of ZYBRESTAT for ophthalmology and OXi4503. Under certain circumstances, the Company may be required to commit up to $15,000,000 to ViDA. The Company’s requirement for additional funding will be determined by a number of factors, including among others, if at all, the determination of the need for more funding and the written recommendation of the Joint Development Committee (JDC), the approval of the Symphony ViDA Board, the probability and amount of the additional funding provided by Holdings, if any, the probability that OXiGENE may provide optional funding (“Optional Company Funding”), and the timing of meeting the potential obligations.

 

The Purchase Option Agreement provides for the exclusive right, but not the obligation, of OXiGENE to repurchase both Programs by acquiring 100% of the equity of ViDA at any time between October 2, 2009 and March 31, 2012 for an amount equal to two times the amount of capital actually invested by Holdings in ViDA, less certain amounts. The purchase price is payable in cash or a combination of cash and shares of OXiGENE common stock (up to 20% of the purchase price or 10% of the total number of shares of OXiGENE common stock outstanding at such time, whichever is less), in OXiGENE’s sole discretion, subject to certain limitations. If OXiGENE does not exercise its exclusive right with respect to the purchase of ZYBRESTAT ophthamology and OXi4503 licensed under the agreement with ViDA, rights to ZYBRESTAT for ophthalmology and OXi4503 at the end of the development period will remain with ViDA.

 

OXiGENE has issued to Holdings, pursuant to the Stock and Warrant Purchase Agreement, an aggregate of 13,513,514 shares of OXiGENE common stock and warrants at a price of $1.11 per share, which was the closing price of OXiGENE common stock on the NASDAQ Global Market on September 30, 2008, the day

before the consummation of the Symphony transaction. In addition, pursuant to the Purchase Option Agreement, the Company issued to Holdings an aggregate of 3,603,604 shares of OXiGENE common stock with a fair value of $4,000,000 as consideration for the Purchase Option. OXiGENE may issue additional shares of its common stock and warrants in the event of specified events under the Additional Funding Agreement (maximum value of stock or warrants equal to one million dollars in scenario that Symphony contributes entire $10 million Additional Funding Amount to ViDA), the Novated and Restated Technology License Agreement (in certain scenarios, a maximum of four million shares to be purchased by Symphony at a price of $1.22 per share) and the Purchase Option Agreement (as consideration for the assets of ViDA, OXiGENE may issue to Symphony stock and warrants equal to a maximum of 20% of the ViDA purchase price, subject to the limitation that such stock and warrants not exceed 10% of the total number of shares of OXiGENE common stock outstanding shares at such time.) OXiGENE has agreed to provide certain registration rights under the Securities Act of 1933, as amended (the “Securities Act”) with respect to the shares issued and to be issued to Holdings under these agreements.

 

The Amended and Restated Research and Development Agreement provides that the conduct of the activities under the mutually agreed upon development plan and budget during the development period will be undertaken primarily by OXiGENE with support from RRD International LLC, the clinical development partner of Symphony, and provides that the development will be overseen by a Development Committee which is comprised of six representatives, three representatives from OXiGENE, one of whom is Patricia A. Walicke, M.D., Ph.D., OXiGENE’s Vice President and Chief Medical Officer, who serves as chairman of the Development Committee, and three representatives from RRD. The Development Committee reports to the board of directors of ViDA, which is comprised of John Kollins, OXiGENE’s Chief Executive Officer, two representatives of Symphony, Mark Kessel and Jeffrey S. Edelman, and two independent board members, Eric K. Rowinsky, M.D., Executive Vice President and Chief Medical Officer of ImClone Systems, Inc., a wholly-owned subsidiary of Eli Lilly and Company and Nicole Onetto, M.D., Senior Vice President and Chief Medical Officer of ZymoGenetics, Inc.

 

In addition, OXiGENE has given Holdings the right to appoint two members to its Board of Directors. Holdings has designated Mark Kessel and Alastair J.J. Wood, M.D., both Managing Directors of Symphony Capital LLC, as the Holdings representatives, who were appointed to the Board on October 22, 2008.

 

Our Development Programs and Product Candidates

 

The following table outlines the ongoing and planned clinical development programs for our current product candidates:

 

 

 

ZYBRESTAT ONCOLOGY — FACT Trial: Pivotal Registration Study in Anaplastic Thyroid Cancer

 

ZYBRESTAT (fosbretabulin) is OXiGENE’s lead VDA product candidate. In the field of oncology, eleven clinical trials evaluating ZYBRESTAT as a treatment for advanced solid tumor cancers have been completed and approximately 350 cancer patients have been treated with ZYBRESTAT, either as a monotherapy or in combination with other cancer treatment modalities. Based on clinical results to date, OXiGENE believes that the safety profile of ZYBRESTAT in oncology appears favorable and may confer advantages versus currently-marketed anti-angiogenic agents. In addition, in seven Phase I and II studies to date, ZYBRESTAT has demonstrated significant tumor blood-flow reducing effects following administration as determined with multiple imaging modalities.

 

ZYBRESTAT, administered intravenously, is currently being evaluated in a 180-patient, controlled, randomized pivotal registration study, which we refer to as the FACT trial, initiated in July 2007, pursuant to a Special Protocol Assessment (SPA) agreement with the U.S. Food and Drug Administration (FDA), as a potential treatment for anaplastic thyroid cancer (ATC), is a highly aggressive and lethal malignancy for which there are no approved therapies and limited therapeutic options. The primary endpoint for the pivotal registration study is overall survival, and the study design incorporates a planned interim analysis, which the Company currently anticipates will occur in the first half of 2010, upon occurrence of a pre-specified number of events (deaths). Depending upon the results observed at the planned interim analysis, which will be conducted by an independent Data Safety Monitoring Committee, the study may be (i) continued as planned; (ii) stopped for overwhelming efficacy; or (iii) increased in size, with respect to the number of patients to be enrolled in the study, in order to increase the probability of observing a statistically significant positive effect on overall survival.

 

Anaplastic Thyroid Cancer (ATC) is one of the most aggressive and lethal cancers known to afflict humans. Unlike other types of thyroid cancer, ATC progresses rapidly, and is assumed to be metastatic at the time it is diagnosed. The median survival from time of diagnosis for patients with ATC is approximately 3-4 months, and there is no approved therapy for ATC at this time. ATC represents between 1 and 5% of all thyroid cancers, and patients with other forms of thyroid cancer can develop ATC as a secondary disease. The Company estimates that 1,000 to 4,000 people in the United States and Europe are diagnosed each year with ATC.

 

The Company believes that pre-clinical and clinical trial results to date support development of ZYBRESTAT for ATC. In Phase I and II clinical trials conducted by OXiGENE or its collaborators, three of seven ATC patients responded to or achieved disease stabilization with ZYBRESTAT therapy. After ZYBRESTAT monotherapy, one individual with pathologically-confirmed ATC achieved a long-term complete response, and is still alive more than nine years later. Individual subjects with metastatic papillary or metastatic medullary thyroid cancer have experienced partial responses or disease stabilization for over one year when treated with ZYBRESTAT monotherapy. In several of these studies in which tumor blood-flow imaging assessments were conducted, ATC and other thyroid cancer patients experienced pronounced tumor blood-flow inhibition in comparison with patients with other solid tumor types. OXiGENE believes these tumor blood-

flow inhibition observations are notable because in pre-clinical studies, the degree of tumor blood-flow inhibition in tumor-implanted animals treated with ZYBRESTAT predicts the extent of tumor cell death within the tumor. In a Phase II trial with ZYBRESTAT monotherapy in 26 patients with metastatic ATC, most of whom had been pre-treated with other therapeutic modalities prior to study entry, 27% of patients achieved stable disease for at least six weeks, with a median survival time for all patients in the study (4.7 months) that the Company believes compares favorably with historical median survival data for this disease based on the largest ATC patient cohorts reported in published scientific literature. Moreover, the 27% of patients achieving stable disease responses in this Phase II study had a median survival time of more than one year. Results from this study were published in 2009 by Dr. Scot Remick and colleagues in the journal Thyroid .

 

The FDA has granted Fast Track designation to ZYBRESTAT for the treatment of regionally advanced and/or metastatic ATC. The FDA’s Fast Track program is designed to facilitate the development and expedite the review of new drugs intended to treat life-threatening conditions for which there is no approved therapy. The Fast Track designation applies to the combination of a drug candidate and a specific disease indication.

 

ZYBRESTAT has been awarded orphan drug status by the FDA and the European Commission in European Union for the treatment of advanced ATC and for the treatment of medullary, Stage IV papillary and Stage IV follicular thyroid cancers. Orphan drug designations are granted by the FDA to provide economic incentives to stimulate the research and development of promising product candidates that treat rare diseases. The Orphan Drug Act provides for seven years of market exclusivity from the time of approval to the first sponsor that obtains market approval for an orphan drug-designated product. It also provides tax credits to defray the cost of research conducted to generate the data required for marketing approval, funding to support clinical trials, and assistance in designing research studies. In the European Union, Orphan Drug Status confers up to 10 years of market exclusivity from the time of approval and as well allows access to a centralized approval process which may accelerate the approval and commercialization of the orphan-designated drug in all European Union states.

 

Phase II Trials in Non- Small Cell Lung Cancer and Platinum-Resistant Ovarian Cancer

 

In addition to the ongoing pivotal registration study in ATC, ZYBRESTAT is being evaluated in two ongoing oncology clinical trials in combination with other cancer treatment modalities, including chemotherapy, and chemotherapy plus bevacizumab, an approved and widely-used anti-angiogenic therapeutic antibody that inhibits VEGF, a key blood-vessel growth factor. Based on pre-clinical and clinical trial results to date, the Company believes that combinations of ZYBRESTAT, chemotherapy, and anti-angiogenic therapeutics such as bevacizumab will have enhanced anti-tumor effects that may result in enhanced clinical benefits for cancer patients. Ongoing and planned clinical trials in which ZYBRESTAT is being evaluated in combination with other cancer treatment modalities are as follows.

 

FALCON Trial: NSCLC — Phase II, randomized, controlled trial evaluating a regimen of ZYBRESTAT + anti-angiogenic therapy + chemotherapy versus anti-angiogenic therapy + chemotherapy in patients with NSCLC .

 

ZYBRESTAT is currently being evaluated in a 60-patient, Phase II, randomized controlled trial, which we refer to as the FALCON Trial, as a potential first-line treatment for patients with stage IIIb/IV NSCLC. Patients on the treatment arm receive ZYBRESTAT, anti-angiogenic therapy (bevacizumab) and chemotherapy (carboplatin and paclitaxel), whereas patients on the control arm of the study receive anti-angiogenic therapy and chemotherapy. The primary endpoint of the study is progression-free survival, and the Company anticipates reporting interim data in 2009 with results to follow in 2010. The Company believes this study, if successful, will (i) provide support for initiating a pivotal registration study with ZYBRESTAT in NSCLC; and (ii) more generally, provide further clinical validation supporting further evaluation of ZYBRESTAT and other VDAs in combination with commonly used anti-angiogenic therapeutics that act via VEGF pathway inhibition.

 

Lung cancer is the second most common form of cancer in the United States, and the most common cause of cancer-related death. Non-small cell lung cancer (NSCLC) is the most common form of lung cancer, with over 400,000 new cases diagnosed each year in the US, Europe and Japan. Treatment of NSCLC depends on the stage of the disease at the time of diagnosis. Bevacizumab anti-angiogenic therapy in combination with

chemotherapy, such as carboplatin plus paclitaxel, is considered a standard treatement for NSCLC patients with extensive lymph node involvement, invasive, or metastatic disease at diagnosis (Stage IIIb/IV disease). Life expectancy for these patients is approximately one year.

 

The Company believes that pre-clinical and clinical trial results to date support development of ZYBRESTAT for NSCLC and for use in combination with anti-angiogenic drugs such as bevacizumab. While VDAs, such as ZYBRESTAT, and anti-angiogenic agents, such as bevacizumab, both target a tumor’s blood supply, they differ in their mechanism-of-action and end result. With anti-angiogenic agents, the therapeutic objective is to prevent tumor growth by inhibiting the formation of new tumor-specific blood vessels that sprout and feed the tumor. These agents typically are used chronically over months to prevent further growth of the tumor mass. Because the tumor is not destroyed, it can form new feeder blood vessels after treatment has stopped. VDAs, in constrast, are designed to attack tumors rapidly by selectively disrupting the existing blood vessel structure, particularly the vessels within the tumor, creating a rapid and irreversible shutdown of these blood vessels. Thus, while VDAs appear to destroy the established blood vessel network within a tumor, anti-angiogenic agents are thought primarily to prevent the growth of new blood vessels.

 

In December 2007, OXiGENE completed a Phase Ib clinical trial to evaluate ZYBRESTAT in combination with bevacizumab in patients with advanced solid tumors. This was the first human clinical trial to pair a vascular disrupting agent and an anti-angiogenic drug in the treatment of cancer, specifically in people who have failed previous treatments and are in advanced stages of disease. The trial was an open-label, multi-center trial designed to determine the safety and tolerability of ascending doses of ZYBRESTAT administered intravenously in combination with bevacizumab. Three dose levels of ZYBRESTAT were evaluated in combination with an approved dose of bevacizumab. In May of 2008, OXiGENE reported final data from the trial showing that the two-drug combination appeared safe and well-tolerated with early signs of clinical efficacy (9 of 16 patients with stable disease responses with prolonged stable disease observed in several patients) and additive effects on tumor blood-flow inhibition.

 

ZYBRESTAT has been observed to have activity against NSCLC in pre-clinical studies, and in a clinical study evaluating ZYBRESTAT in combination with radiation therapy in patients with NSCLC, the combination was observed to result in significant tumor blood-flow reductions.

 

Platinum-resistant ovarian cancer — Phase II Simon two-stage design trial evaluating ZYBRESTAT in combination with chemotherapy in patients with platinum-resistant ovarian cancer.

 

ZYBRESTAT is currently being evaluated in a 44-patient, Phase II, Simon two-stage design trial sponsored by Cancer Research United Kingdom for women with relapsed, advanced platinum-resistant ovarian cancer. All participants receive ZYBRESTAT and chemotherapy (carboplatin and paclitaxel). The trial is open-label and is designed to evaluate the safety and efficacy, as determined by RECIST and CA125 biomarker criteria, of ZYBRESTAT in combination with carboplatin and paclitaxel in women with platinum-resistant ovarian cancer. In October 2008, the principal investigator reported interim results showing that 10 of 34 patients (29%) enrolled to date had partial responses as measured by tumor imaging (RECIST) and/or ovarian cancer biomarker (CA-125) criteria. An additional unconfirmed partial response was observed in a patient lost to follow up, stable disease responses were observed in an additional nine patients, and clinical benefit was observed in at least one non-evaluable patient. The combination regimen of ZYBRESTAT and chemotherapy was observed to be well tolerated. Enrollment for this study is complete, and the Company anticipates final results from this trial will be reported at the 2009 annual meeting of the American Society of Clinical Oncology. After reviewing these initial results with an ovarian cancer expert panel, the Company believes the interim data, assuming final results are similar, support further development of ZYBRESTAT in ovarian cancer and is considering options for undertaking further studies in ovarian cancer, including a study or studies which may potentially be undertaken in collaboration with an oncology cooperative study group.

 

Ovarian cancer is the fourth most common cancer in women and the deadliest of the gynecologic cancers. The disease often has no symptoms in its early stages. As a result, most patients have advanced disease at the time of diagnosis. Standard therapy for newly diagnosed ovarian cancer usually consists of surgery to remove

the tumor, ovaries, and uterus, followed by chemotherapy, typically with carboplatin alone, or both paclitaxel and carboplatin.

 

Despite advances in the management of ovarian cancer with chemotherapy, radiotherapy and surgery, the disease recurs in many women within five years. Patients whose disease recurs within six months of completion of chemotherapy with a platinum-based drug are considered “platinum-resistant.” The majority of women with advanced ovarian cancer will relapse and many of these women will be considered platinum-resistant either at first relapse or at a later relapse. Although treatment with cytotoxic chemotherapy is an alternative for patients with platinum-resistant ovarian cancer, response rates are typically in the range of 10-20%, and frequently are achieved at the expense of side-effects that impair patients’ quality-of-life.

 

ZYBRESTAT Oncology Business Strategy

 

OXiGENE believes that the ATC indication potentially offers a relatively rapid and cost-effective route to ZYBRESTAT approval and commercialization in a targeted therapeutic area that is characterized by (i) a relatively small group of specialty physicians who treat and manage patients; (ii) high unmet medical need; and (iii) the absence of other promoted therapeutic products. These characteristics suggest that the ATC / refractory thyroid cancer market could be effectively addressed with a small specialty commercial organization. In addition to ATC, OXiGENE believes that patients suffering from other forms of refractory thyroid cancer may benefit from treatment with ZYBRESTAT, and the Company is considering options for undertaking clinical trials to further evaluate the therapeutic utility of ZYBRESTAT in other forms of thyroid cancer.

 

Beyond the thyroid cancer area, the Company believes that ZYBRESTAT may have therapeutic utility in a variety of solid and liquid tumors, and the Company is actively considering partnership options in order to rapidly pursue development and commercialization of ZYBRESTAT in a breadth of oncology indications. In its ZYBRESTAT oncology development program, the Company’s objectives are to position ZYBRESTAT for use: in highly aggressive and difficult-to-treat tumors, such as ATC and platinum-resistant ovarian cancer; in combination with chemotherapy, in particular the carboplatin + paclitaxel chemotherapy “backbone” that is being utilized in all three ongoing ZYBRESTAT oncology clinical studies; and in combination with anti-angiogenic agents such as bevacizumab. If successful in its ZYBRESTAT oncology clinical development program, the Company believes that ZYBRESTAT will be effectively positioned for further development ZYBRESTAT, in collaboration with a partner, for broad use in a variety of tumor types and cancer treatment regimens.

 

ZYBRESTAT for Ophthalmology

 

The Company is currently conducting pre-clinical studies and plans to initiate in the first half of 2009 at least one human clinical trial with intravenously-administered ZYBRESTAT to (i) confirm the therapeutic utility of ZYBRESTAT in an ophthalmologic indication; (ii) determine tissue concentrations of drug required for activity; and (iii) further evaluate the feasibility of and increase the probability of success associated with developing a topical formulation of ZYBRESTAT for ophthalmological indications. The Company has identified a potential initial target indication for ZYBRESTAT in ophthalmology that is characterized by abnormal vascularization of the retina/choroid and is reported to respond sub-optimally to treatment with current anti-angiogenic therapeutics and other therapies. The Company believes this indication represents a significant population with high unmet needs and may provide an attractive development pathway for ZYBRESTAT in ophthalmology that would obviate the need for potentially large and costly comparative and/or combination clinical studies with currently-approved anti-angiogenic drugs.

 

Abnormal neovascularization characterizes a variety of ophthalmological diseases and conditions, including corneal neovascularization, central retinal vein occlusion, proliferative diabetic retinopathy, retinopathy of prematurity, sickle cell retinopathy, myopic macular degeneration (MMD), age-related macular degeneration (AMD), and neovascular glaucoma. The Company and/or its collaborators have published encouraging results from pre-clinical studies with ZYBRESTAT in various pre-clinical models of ophthalmological diseases characterized by abnormal neovascularization. To date, the Company has completed pre-clinical experiments demonstrating that ZYBRESTAT has activity in six different pre-clinical ophthalmology models, including a

model in which ZYBRESTAT was combined with an approved anti-angiogenic drug. In February 2007 at the annual meeting of the Association for Research in Vision and Ophthalmology (ARVO), we announced results from a 23-patient, Phase II clinical trial of intravenously-administered ZYBRESTAT in MMD. All patients in this study met the primary endpoint of vision stabilization at three months following study entry. The Company believes the results from this study establish initial human proof-of-concept for ZYBRESTAT in ophthalmological indications. In December 2007, the Company reported results from a pre-clinical study with topically-administered ZYBRESTAT in rabbits indicating that, with topically-administered ZYBRESTAT, drug concentrations are achieved in target tissues in the eye (i.e., the retina and choroid) that the Company believes are sufficient for therapeutic effect. Data from subsequent pre-clinical studies with multiple topical formulations corroborate these results.

 

Based on results from pre-clinical and clinical trials, the Company believes that a topically-applied formulation of ZYBRESTAT (e.g., an eye-drop or other topical formulation) is feasible and may have clinical utility in the treatment of patients with a variety of ophthalmological diseases and conditions, such as age-related macular degeneration, diabetic retinopathy and neovascular glaucoma, which are characterized by abnormal blood vessel growth and associated loss of vision. In these diseases, the Company believes that ZYBRESTAT can be utilized as a therapeutic to selectively disable the network of abnormally formed existing and emerging blood vessels that infiltrate the back or other parts of the eye and thereby cause severe visual impairment. In addition to having potential utility for treating ocular diseases and conditions that affect tissues in the back of the eye, the Company believes that a topical ophthalmological formulation of ZYBRESTAT could also have utility for the treatment of other ocular diseases and conditions characterized by abnormal neovascularization that affect tissues in the front of the eye, such as the cornea and iris.

 

Although several anti-angiogenic therapeutics have been approved and are marketed for ophthalmological indications in which patients are experiencing active disease, the requirement that these therapeutics be injected directly into the eye on a repeated basis is a significant limitation for some patients and may result in serious side-effects. OXiGENE believes that a topical formulation of ZYBRESTAT may (i) decrease the requirement for or possibly even replace the use of medications injected into the eye; and (ii) have utility for treating patients with newly developed and/or less severe forms of neovascular ophthalmological diseases and conditions, which could potentially prevent these patients from developing active and/or severe forms of the disease that result in vision loss; and (iii) have utility in patients with neovascular ophthalmological diseases and conditions that do not respond well to treatment with currently available therapeutics.

 

OXi4503, a second-generation dual-mechanism VDA

 

The Company is pursuing development of OXi4503, a second-generation, dual-mechanism VDA, as a treatment for for certain solid and liquid tumor types (e.g., leukemia, hepatic tumors, and melanoma) in which oxidative enzymes are believed to be present in relatively high quantities. The Company believes that OXi4503 is differentiated from other VDAs by its dual-action activity. The Company’s data indicate that in addition to having potent vascular disrupting effects, OXi4503 can be metabolized by oxidative enzymes to an orthoquinone chemical species that has direct cytoxic effects on tumor cells. Based on pre-clinical studies, the Company believes that OXi4503 may have enhanced activity in tumor types with relatively high levels of oxidative enzymes that can facilitate the metabolism of the active OXi4503 VDA to a cytotoxic orthoquinone species. OXiGENE is currently evaluating OXi4503, in a Phase I clinical trial in patients with advanced solid tumors. Based on results from pre-clinical studies in which OXi4503 has shown potent anti-tumor activity against solids and hematological malignancies (i.e., acute myeloid leukemia), both as a single agent and in combination with other cancer treatment modalities, the Company plans to file an IND and initiate additional Phase Ib studies beginning in the first half of 2009.

 

In May 2008, our collaborators from Cancer Research UK presented interim data from an ongoing dose-escalating Phase I clinical trial of OXi4503 in patients with advanced tumors indicating that OXi4503 was observed to be moderately well tolerated with the most common dose-limiting toxicities and adverse events consistent with class effects of VDAs. In addition, tumor blood-flow shutdown and metabolic inactivation were observed with MRI and PET imaging, and disease stabilization (stable disease per RECIST criteria) was achieved in 6 of 20 subjects.

Company Background

 

The Company is a Delaware corporation, incorporated in 1988 in the state of New York and reincorporated in 1992 in the state of Delaware, with its corporate office in the United States at 230 Third Avenue, Waltham, Massachusetts 02451 (telephone: 781-547-5900; fax: 781-547-6800). We also have offices located in South San Francisco, California, and in Oxford, United Kingdom. The Company’s Internet address is www.OXiGENE.com. The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, are available to you free of charge through the Investor Relations section of our website as soon as reasonably practicable after such materials have been electronically filed with, or furnished to, the U.S. Securities and Exchange Commission (SEC).

 

VASCULAR DISRUPTING AGENTS: 2 ^ND -GENERATION ANTI-VASCULAR THERAPEUTICS THAT ADDRESS A LARGE POTENTIAL MARKET OPPORTUNITY

 

According to Cancer Research UK, a cancer organization in the United Kingdom, nearly 90% of all cancers, more than 200 types, are solid tumors, which are dependent upon a continually developing vascular supply for their growth and survival. Similarly, in the ophthalmology field, abnormal neovascularization characterizes a variety of ophthalmological diseases and conditions, including corneal neovascularization, central retinal vein occlusion, proliferative diabetic retinopathy, retinopathy of prematurity, sickle cell retinopathy, myopic macular degeneration (MMD), age-related macular degeneration (AMD), and neovascular glaucoma.

 

Since 2004, multiple anti-angiogenic drugs have been approved for a variety of cancer and ophthalmology indications, and development of approved anti-angiogenic drugs for new indications continues. Physician adoption of these first-generation anti-vascular drugs has been rapid and continues to accelerate. In 2008, the Company estimates that ex-manufacturer sales of approved anti-angiogenic drugs increased by approximately 25% over 2007, approaching $6 billion in 2008.

 

The Company believes that its VDA drug candidates are second-generation anti-vascular drugs that differ from and are complementary and non-competitive with anti-angiogenic agents. Similar to anti-angiogenic agents, OXiGENE’s VDA drug candidates are anti-vascular drugs that exert therapeutic effects by depriving tumors — and in the case of eye disease, ocular lesions — of blood supply. The Company also believes that its VDA therapeutics may be better tolerated than anti-angiogenic drugs and may potentially have utility in later-stage tumors that have become unresponsive to anti-angiogenic therapies.

 

In September 2006, OXiGENE announced the publication of a research article in the journal Science that provided strong scientific evidence for combining VDAs with anti-angiogenic agents such as bevacizumab, a widely-used anti-angiogenic drug that acts by inhibiting VEGF, a pro-angiogenic growth factor. In this article Professor Kerbel and Dr. Shaked from Sunnybrook Cancer Centre in Canada demonstrated that the combination of ZYBRESTAT and an anti-angiogenic agent (an anti-VEGF-receptor antibody) had synergistic effects on tumors.

 

In December 2007, OXiGENE completed a Phase Ib clinical trial to evaluate ZYBRESTAT in combination bevacizumab (an approved and widely-used anti-VEGF monoclonal antibody) in patients with advanced solid tumors. This was the first human clinical trial to pair a vascular disrupting agent and an anti-angiogenic drug in the treatment of cancer, specifically in patients who had failed previous treatments and were in advanced stages of disease. The trial was an open-label, multi-center trial designed to determine the safety and tolerability of ascending doses of ZYBRESTAT administered intravenously in combination with bevacizumab. Three dose levels of ZYBRESTAT were evaluated in combination with an approved dose of bevacizumab. In May of 2008, OXiGENE reported final data from the trial showing that the two-drug combination appeared safe and well-tolerated with early signs of clinical efficacy (9 of 16 patients with stable disease responses with prolonged stable disease observed in several patients) and additive effects on tumor blood-flow inhibition.

 

OXiGENE believes that these pre-clinical and clinical research results suggest combining VDA and anti-angiogenic therapies may be a compelling strategy to maximize the therapeutic potential of VDAs and anti-angiogenic drugs in the treatment of solid tumors. The Company believes the potential ability to synergistically

combine VDA drugs with anti-angiogenic therapeutics affords it a wide range of future development and commercialization options with its VDA drug candidates, including tumor types and treatment settings where anti-angiogenic drugs are commonly utilized, as well as those where anti-angiogenic agents are either poorly tolerated, ineffective, no longer effective, or not commonly utilized.

 

As illustrated in the table below, VDA and anti-angiogenic drugs act via different mechanisms to produce complementary biological and anti-vascular effects with mostly non-overlapping side effects. In pre-clinical studies, VDA plus anti-angiogenic drug combinations demonstrate robust and additive anti-tumor effects. Results from initial human clinical studies conducted by OXiGENE with combinations of ZYBRESTAT and the widely-used anti-angiogenic drug, bevacizumab, provide support and initial clinical validation for combining these agents to significantly increase clinical activity without significantly increasing side-effects.

 

 

The Company believes its VDA drug candidates act on tumor blood vessels via two complementary mechanisms, tubulin depolymerization and disengagement of the junctional protein VE-cadherin, so as to cause shape change of tumor vascular endothelial cells, vessel occlusion and collapse, and the subsequent blockage of blood-flow to the tumor, which deprives it of oxygen and nutrients essential for survival.

In vitro studies have demonstrated that its VDA drug candidates act in a reversible fashion on a protein called tubulin inside newly-formed and growing endothelial cells, such as the vascular endothelial cells comprising tumor vasculature. By binding to the tubulin, ZYBRESTAT is able to collapse the structural framework that maintains the cells’ flat shape. When this occurs, the shape of the cells changes from flat to round, initiating a cascade of events resulting in physical blockage of the blood vessels. The resulting shutdown in blood-flow then deprives tumor cells of the oxygen and nutrients necessary for maintenance and growth and also prevents tumor cells from being able to excrete toxic metabolic waste products. The consequence of the blockage is extensive tumor cell death, as demonstrated in animal studies and suggested in imaging studies of human patients treated with ZYBRESTAT and OXi4503.

 

Pre-clinical research, published in the November 2005 issue of the Journal of Clinical Investigation , showed that ZYBRESTAT also disrupts the molecular engagement of VE-cadherin, a junctional protein important for endothelial cell survival and function. The authors of the research article conclude that this effect only occurs in endothelial cells which lack contact with smooth muscle cells, a known feature of abnormal vasculature associated with tumors and other disease processes. The disengagement of VE-cadherin leads to endothelial cell detachment, which in turn, can cause permanent physical blockage of vessels.

 

Pre-clinical and clinical study results indicate that ZYBRESTAT exerts anti-vascular effects rapidly, within hours of administration, and the half-life of the active form of ZYBRESTAT in humans is approximately four hours. Because the half-life of the active form of ZYBRESTAT is relatively short, the effects of ZYBRESTAT on tubulin are reversible, and ZYBRESTAT is typically administered no more frequently than once per week, the side-effects of ZYBRESTAT are typically transient in nature, limited to the period of time following administration when the active form of ZYBRESTAT is in the body in significant concentrations. This contrasts with anti-angiogenic agents, which are typically administered on a chronic basis so as to constantly maintain levels of drug in the body, exert their tumor blood-vessel growth inhibiting effects over days to weeks, and as a result can cause a variety of chronic side-effects that are not limited to the immediate period following administration.

 

In contrast with anti-angiogenic agents, which can cause a variety of chronic side-effects, side-effects associated with ZYBRESTAT are typically transient and manageable. The most frequent ZYBERESTAT side-effects include infusion-related side effects such as nausea, vomiting, headache and fatigue, and tumor pain, which is consistent with the drug’s mechanism-of-action. Like approved anti-angiogenic drugs, ZYBRESTAT also exhibits cardiovascular effects, which in the majority of patients are mild and transient and transient in nature. Approximately 10-20% of patients treated with ZYBRESTAT experience clinically-significant and transient hypertension that can be readily managed and prevented after initial occurence with straightforward oral anti-hypertensive therapy. In an analysis undertaken by OXiGENE, the incidence of serious cardiovascular side-effects such as angina and myocardial ischemia observed across all studies to date (including early studies in which hypertension management and prevention was not employed) was less than 3%, a frequency comparable to that reported with approved anti-angiogenic agents such as bevacizumab, sunitinib and sorafenib.

 

The Company’s strategy is to develop innovative therapeutics for oncology and to leverage its drug candidates and technology in the field of ophthalmology. The principal focus of the Company, in the foreseeable future, is to complete the clinical development of its drug candidates ZYBRESTAT and OXi4503 and to identify new pre-clinical candidates that are complementary to our VDAs. To advance its strategy, the Company has established relationships with universities, research organizations and other institutions in these fields. The Company intends to broaden these relationships, rather than expand its in-house research and development staff. In general, these programs are created, developed and controlled by internal Company management. Currently, the Company has collaborative agreements and arrangements with a number of institutions in the United States and abroad, which it utilizes to perform the day-to-day activities associated

with drug development. In 2008, collaborations were ongoing with a variety of university and research institutions, including the following:

 

 

The Company has secured a technology license from Arizona State University (ASU). The ASU license is an exclusive, world-wide, royalty-bearing license with respect to the commercial rights to particular Combretastatins. Under the ASU license, the Company has the right to grant sublicenses. ASU is entitled to royalty and milestone payments under the license agreement. The Company bears the costs of preparing, filing, prosecuting and maintaining all patent applications under the ASU license. Under the license agreement, the Company has agreed to diligently proceed with the development, manufacture and sale of products using the licensed technology. ASU has the first responsibility of enforcing patents under the license agreement. Either party may terminate the license agreement upon material default or bankruptcy of the other party. Payments made to ASU to date have amounted to $2,500,000. The agreement is to terminate on December 31, 2014 or within two months of receipt of written notice of termination from the Company. Currently, the Company is in compliance with the license.

 

The Company also has a license from Baylor University. The Baylor license is an exclusive license to all novel compositions developed for the treatment of vascular disorders, inflammation, parasitic diseases and infections, fungal diseases and infections and/or cancer. The Company has the right to grant sublicenses under the Baylor license. The agreement with Baylor stipulates that royalties will be paid by OXiGENE should sales be generated through use of Baylor’s compounds. The Company is not required to pay Baylor for use of Baylor’s compounds aside from this royalty arrangement. The Company is entitled to file, prosecute and maintain patent applications on products for which it has a license. The Company had made a one-time payment of $50,000 for the licensing fee that was used as a credit against research expenses generated by Baylor. The agreement will terminate on June 1, 2009 or within 90 days of written notice of material breach of the agreement by either party. Currently, the Company is in compliance with the Baylor license.

 

In March 2007, the Company entered into an exclusive license agreement for the development and commercialization of products covered by certain patent rights owned by Intracel Holdings, Inc., a privately held corporation. The Company paid Intracel $150,000 in March 2007 as an up-front license fee that provides full control over the development and commercialization of licensed compounds/molecular products. The Company expensed the up-front payment to research and development expense. The agreement provides for additional payments by the Company to Intracel based on the achievement of certain clinical milestones and royalties based on the achievement of certain sales milestones. The Company has the right to sublicense all or portions of its licensed patent rights under this agreement.

 

Government Regulation and Product Approval

 

Government authorities in the United States, at the federal, state and local level, and other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, marketing and export and import of products such as those we are developing. Our drugs must be approved by FDA through the new drug application, or NDA, process before they may be legally marketed in the United States.

 

United States Drug Development Process

 

In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance

with appropriate federal, state, local, and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with the applicable United States requirements at any time during the product development process, approval process or after approval, may subject an applicant to administrative or judicial sanctions. These sanctions could include the FDA’s refusal to approve pending applications, withdrawal of an approval, a clinical hold, warning letters, product recalls, product seizures, total or partial suspension of production or distribution injunctions, fines, refusal of government contracts, restitution, disgorgement, or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us. The process required by the FDA before a drug may be marketed in the United States generally involves the following:

 

 

The testing and approval process requires substantial time, effort and financial resources, and we cannot be certain that any approvals for our product candidates will be granted on a timely basis, if at all.

 

Once a pharmaceutical candidate is identified for development it enters the pre-clinical testing stage. Pre-clinical tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies. An IND sponsor must submit the results of the pre-clinical tests, together with manufacturing information and analytical data, to the FDA as part of the IND. The sponsor will also include a protocol detailing, among other things, the objectives of the clinical trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated, if the first phase lends itself to an efficacy evaluation. Some pre-clinical testing may continue even after the IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, places the clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. Clinical holds also may be imposed by the FDA at any time before or during studies due to safety concerns or non-compliance.

 

All clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with good clinical practice regulations. These regulations include the requirement that all research subjects provide informed consent. Further, an institutional review board, or IRB, must review and approve the plan for any clinical trial before it commences at any institution. An IRB considers, among other things, whether the risks to individuals participating in the trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the information regarding the trial and the consent form that must be provided to each trial subject or his or her legal representative and must monitor the study until completed.

 

Each new clinical protocol must be submitted to the IND for FDA review, and to the IRBs for approval. Protocols detail, among other things, the objectives of the study, dosing procedures, subject selection and exclusion criteria, and the parameters to be used to monitor subject safety.

 

Human clinical trials are typically conducted in three sequential phases that may overlap or be combined:

 

 

 

During the development of a new drug, sponsors may, under certain circumstances request a special protocol assessment, or SPA, from the FDA. For example, a sponsor may request an SPA of a protocol for a clinical trial that will form the primary basis of an efficacy claim in an NDA. The request, which must be made prior to commencing the trial, must include the proposed protocol and protocol-specific questions that the sponsor would like the FDA to answer such as questions regarding the protocol design, study goals and data analysis for the proposed investigation. After receiving the request, the FDA will consider whether the submission is appropriate for an SPA. If an SPA is appropriate, the FDA will base its assessment on the questions posed by the sponsor. Comments from the FDA review team are supposed to be sent to the sponsor within 45 calendar days of receipt of the request. The sponsor may request a meeting to discuss the comments and any remaining issues and uncertainties regarding the protocol. If the sponsor and the FDA reach agreement regarding the protocol, the agreement will be documented and made part of the administrative record. This agreement may not be changed by the sponsor or the FDA after the trial begins, except (1) with the written agreement of the sponsor and the FDA or (2) if the FDA determines that a substantial scientific issue essential to determining the safety or effectiveness of the drug was identified after the testing began.

 

Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and safety reports must be submitted to the FDA, IRBs and the investigators for serious and unexpected adverse events. Phase I, Phase II, and Phase III testing may not be completed successfully within any specified period, if at all. The FDA or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients.

 

Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the drug and finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, the manufacturer must develop methods for testing the identity, strength, quality and purity of the final drug. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.

 

U.S. Review and Approval Processes

 

The results of product development, pre-clinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests conducted on the chemistry of the drug, proposed labeling, and other relevant information are submitted to the FDA as part of an NDA requesting approval to market the product. The submission of an NDA is subject to the payment of user fees; a waiver of such fees may be obtained under certain limited circumstances.

 

In addition, under the Pediatric Research Equity Act, or PREA, an NDA or supplement to an NDA must contain data to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which

the drug is safe and effective. The FDA may grant deferrals for submission of data or full or partial waivers. Unless otherwise required by regulation, PREA does not apply to any drug for an indication for which orphan designation has been granted.

 

The FDA reviews all NDAs submitted to ensure that they are sufficiently complete for substantive review before it accepts them for filing. The FDA may request additional information rather than accept a NDA for filing. In this event, the NDA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. FDA may refer the NDA to an advisory committee for review, evaluation and recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. The approval process is lengthy and difficult and the FDA may refuse to approve an NDA if the applicable regulatory criteria are not satisfied or may require additional clinical or other data and information. Even if such data and information is submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than we interpret the same data. The FDA may issue an approvable letter, which may require additional clinical or other data or impose other conditions that must be met in order to secure final approval of the NDA. The FDA reviews an NDA to determine, among other things, whether a product is safe and effective for its intended use and whether its manufacturing is cGMP-compliant to assure and preserve the product’s identity, strength, quality and purity. Before approving an NDA, the FDA will inspect the facility or facilities where the product is manufactured.

 

NDAs receive either standard or priority review. A drug representing a significant improvement in treatment, prevention or diagnosis of disease may receive priority review. In addition, products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments may receive accelerated approval and may be approved on the basis of adequate and well-controlled clinical trials establishing that the drug product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit or on the basis of an effect on a clinical endpoint other than survival or irreversible morbidity. As a condition of approval, the FDA may require that a sponsor of a drug receiving accelerated approval perform adequate and well-controlled post-marketing clinical trials. Priority review and accelerated approval do not change the standards for approval, but may expedite the approval process.

 

If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. In addition, the FDA may require us to conduct Phase IV testing which involves clinical trials designed to further assess a drug’s safety and effectiveness after NDA approval, and may require testing and surveillance programs to monitor the safety of approved products which have been commercialized.

 

Patent Term Restoration and Marketing Exclusivity

 

Depending upon the timing, duration and specifics of FDA approval of the use of our drugs, some of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the time between the effective date of an IND, and the submission date of an NDA, plus the time between the submission date of an NDA and the approval of that application. Only one patent applicable to an approved drug is eligible for the extension and the extension must be applied for prior to expiration of the patent. The United States Patent and Trademark Office, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we intend to apply for restorations of patent term for some of our currently owned or licensed patents to add patent life beyond their current expiration date, depending on the expected length of clinical trials and other factors involved in the filing of the relevant NDA. Provisions similar to those in the U.S. for patent term restoration are available in the European Union, Japan and other countries and regions. For example, in the

European Union, a Supplemental Protection Certificate may be utilized to extend patent life of a drug product for up to a maximum of five years.

 

Market exclusivity provisions under the FDCA also can delay the submission or the approval of certain applications. The FDCA provides a five-year period of non-patent marketing exclusivity within the United States to the first applicant to gain approval of an NDA for a new chemical entity. A drug is a new chemical entity (NCE) if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application, or ANDAs, or a 505(b)(2) NDA submitted by another company for another version of such drug where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement. The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by FDA to be essential to the approval of the application, for example, for new indications, dosages, or strengths of an existing drug. This three-year exclusivity covers only the conditions associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the original active agent. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA; however, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the pre-clinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.

 

With respect to territories outside the U.S., under Article 39.3 of the World Trade Organization’s Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), member countries are obliged to protect against unfair commercial use of confidential data on NCEs submitted by companies to obtain approval for marketing new drugs from a regulatory agency.

 

Statutory NCE exclusivity provisions in other territories provide for marketing exclusivity as outlined in the following table:

 

 

Pediatric exclusivity is another type of exclusivity in the United States and the European Union. In the U.S., pediatric exclusivity, if granted, provides an additional six months to an existing exclusivity or statutory delay in approval resulting from a patent certification. This six-month exclusivity, which runs from the end of other exclusivity protection or patent delay, may be granted based on the voluntary completion of a pediatric study in accordance with an FDA-issued “Written Request” for such a study. The current pediatric exclusivity provision was reauthorized on September 27, 2007.

 

Orphan Drug Designation

 

Under the Orphan Drug Act, the FDA may grant orphan drug designation to a drug intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and making available in the United States a drug for this type of disease or condition will be recovered from sales in the United States for that drug. Orphan drug designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.

If a product that has orphan drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same drug for the same indication, except in very limited circumstances, for seven years. Orphan drug exclusivity, however, also could block the approval of one of our products for seven years if a competitor obtains approval of the same drug as defined by the FDA or if our product candidate is determined to be contained within the competitor’s product for the same indication or disease.

 

The FDA also administers a clinical research grants program, whereby researchers may compete for funding to conduct clinical trials to support the approval of drugs, biologics, medical devices, and medical foods for rare diseases and conditions. A product does not have to be designated as an orphan drug to be eligible for the grant program. An application for an orphan grant should propose one discrete clinical study to facilitate FDA approval of the product for a rare disease or condition. The study may address an unapproved new product or an unapproved new use for a product already on the market.

 

In the European Union and Japan, orphan drug exclusivity regulations provide for 10 years of marketing exclusivity for orphan drugs that are approved for the treatment of rare diseases or conditions.

 

Expedited Review and Approval

 

The FDA has various programs, including Fast Track, priority review, and accelerated approval, that are intended to expedite or simplify the process for reviewing drugs, and/or provide for approval on the basis of surrogate endpoints. Even if a drug qualifies for one or more of these programs, we cannot be sure that the FDA will not later decide that the drug no longer meets the conditions for qualification or that the time period for FDA review or approval will be shortened. Generally, drugs that may be eligible for these programs are those for serious or life-threatening conditions, those with the potential to address unmet medical needs, and those that offer meaningful benefits over existing treatments. Fast Track designation applies to the combination of the product and the specific indication for which it is being studied. Although Fast Track and priority review do not affect the standards for approval, FDA will attempt to facilitate early and frequent meetings with a sponsor of a Fast Track designated drug and expedite review of the application for a drug designated for priority review. Drugs that receive an accelerated approval may be approved on the basis of adequate and well-controlled clinical trials establishing that the drug product has an effect of a surrogate endpoint that is reasonably likely to predict clinical benefit or on the basis of an effect on a clinical endpoint other than survival or irreversible morbidity. As a condition of approval, the FDA may require that a sponsor of a drug receiving accelerated approval perform post-marketing clinical trials.

 

Post-Approval Requirements

 

Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product may result in restrictions on the product or even complete withdrawal of the product from the market. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further FDA review and approval. Drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws. We rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of our products. Future FDA and state inspections may identify compliance issues at the facilities of our contract manufacturers that may disrupt production or distribution, or require substantial resources to correct.

 

Any drug products manufactured or distributed by us pursuant to FDA approvals are subject to continuing regulation by the FDA, including, among other things, record-keeping requirements, reporting of adverse experiences with the drug, providing the FDA with updated safety and efficacy information, drug sampling and distribution requirements, complying with certain electronic records and signature requirements, and complying with FDA promotion and advertising requirements. FDA strictly regulates labeling, advertising, promotion

and other types of information on products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label.

 

From time to time, legislation is drafted, introduced and passed in Congress that could significantly change the statutory provisions governing the approval, manufacturing and marketing of products regulated by the FDA. For example, on September 27, 2007, the Food and Drug Administration Amendments Act of 2007 was enacted, giving the FDA enhanced post-market authority, including the authority to require postmarket studies and clinical trials, labeling changes based on new safety information, and compliance with a risk evaluation and mitigation strategy approved by the FDA. Failure to comply with any requirements under the new law may result in significant penalties. The new law also authorizes significant civil money penalties for the dissemination of false or misleading direct-to-consumer advertisements, and allows the FDA to require companies to submit direct-to-consumer television drug advertisements for FDA review prior to public dissemination. Additionally, the new law expands the clinical trial registry so that sponsors of all clinical trials, except for phase I trials, are required to submit certain clinical trial information for inclusion in the clinical trial registry data bank. In addition, to new legislation, FDA regulations and guidance are often revised or reinterpreted by the agency in ways that may significantly affect our business and our products. It is impossible to predict whether further legislative changes will be enacted, or FDA regulations, guidance or interpretations changed or what the impact of such changes, if any, may be.

 

Foreign Regulation

 

In addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain approval of a product by the comparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of the product in those countries. The approval process varies from country to country and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country.

 

Under European Union regulatory systems, we may submit marketing authorization applications either under a centralized or decentralized procedure. The centralized procedure is compulsory for medicines produced by certain biotechnological processes such as genetic engineering, new chemical entities intended for the treatment of HIV/AIDS, cancer, diabetes, neurodegenerative disorders or autoimmune diseases and other immune dysfunctions, or officially designated “orphan medicines’ and optional for those which are highly innovative. The centralized procedure provides for the grant of a single marketing authorization that is valid for all European Union member states, as well as in the EEA/EFTA states Iceland, Liechtenstein and Norway. For drugs without approval in any Member State and that do not fall within the mandatory scope of the centralized procedure, the decentralized procedure provides for simultaneous approval by one or more other, or concerned, Member States of an assessment of an application performed by one Member State, known as the reference Member State. Under this procedure, an applicant submits an application, or dossier, and related materials (draft summary of product characteristics, draft labeling and package leaflet) to the reference Member State and concerned Member States. The reference Member State prepares a draft assessment and drafts of the related materials within 120 days after receipt of a valid application. Within 90 days of receiving the reference Member State’s assessment report, each concerned Member State must decide whether to approve the assessment report and related materials. If a Member State cannot approve the assessment report and related materials on the grounds of potential serious risk to public health, the disputed points may eventually be referred to the European Commission, whose decision is binding on all Member States.

 

As in the U.S., the European Union may grant orphan drug status for specific indications if the request is made before an application for marketing authorization is made. The European Union considers an orphan medicinal product to be one that affects less than five of every 10,000 people in the European Union. A company whose application for orphan drug designation in the European Union is approved is eligible to receive, among other benefits, regulatory assistance in preparing the marketing application, protocol assistance, access to the Centralized Procedure and reduced application fees. Orphan drugs in the European Union also enjoy economic and marketing benefits, including up to ten years of market exclusivity for the approved

indication, unless another applicant can show that its product is safer, more effective or otherwise clinically superior to the orphan designated product. In the European Union and Japan, orphan drug exclusivity regulations provide for 10 years of marketing exclusivity for orphan drugs approved for the treatment of rare diseases or conditions.

 

Reimbursement

 

Sales of pharmaceutical products depend in significant part on the availability of third-party reimbursement. Third-party payors include government health administrative authorities, managed care providers, private health insurers and other organizations. We anticipate third-party payors will provide reimbursement for our products. However, these third-party payors are increasingly challenging the price and examining the cost-effectiveness of medical products and services. In addition, significant uncertainty exists as to the reimbursement status of newly approved healthcare products. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the cost-effectiveness of our products. Our product candidates may not be considered cost-effective. It is time consuming and expensive for us to seek reimbursement from third-party payors. Reimbursement may not be available or sufficient to allow us to sell our products on a competitive and profitable basis.

 

The passage of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, imposes new requirements for the distribution and pricing of prescription drugs for Medicare beneficiaries, and includes a major expansion of the prescription drug benefit under a new Medicare Part D. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities which will provide coverage of outpatient prescription drugs. Part D plans include both stand-alone prescription drug benefit plans and prescription drug coverage as a supplement to Medicare Advantage plans. Unlike Medicare Part A and B, Part D coverage is not standardized. Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily all the drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee.

 

It is not clear what effect the MMA will have on the prices paid for currently approved drugs and the pricing options for new drugs. Government payment for some of the costs of prescription drugs may increase demand for products for which we receive marketing approval. However, any negotiated prices for our products covered by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments from non-governmental payors.

 

We expect that there will continue to be a number of federal and state proposals to implement governmental pricing controls and limit the growth of healthcare costs, including the cost of prescription drugs. At the present time, Medicare is prohibited from negotiating directly with pharmaceutical companies for drugs. However, Congress is currently considering passing legislation that would lift the ban on federal negotiations. While we cannot predict whether such legislative or regulatory proposals will be adopted, the adoption of such proposals could have a material adverse effect on our business, financial condition and profitability.

 

In addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. There can be no assurance that any country that has price controls or reimbursement

limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products.

 

The Company is able to protect its technology from unauthorized use by third parties only to the extent that it is covered by valid and enforceable patents or is effectively maintained as a trade secret. Accordingly, patents or other proprietary rights are an essential element of our business. OXiGENE has over 30 pending patent applications and over 25 issued patents in the United States that are owned by or exclusively licensed to it, as well as pending corresponding foreign patent applications. The Company’s policy is to file United States and foreign patent applications to protect technology, inventions and improvements to inventions that are commercially important to the development of its business. There can be no assurance that any of these patent applications will result in the grant of a patent either in the United States or elsewhere, or that any patents granted will be valid and enforceable, or will provide a competitive advantage or will afford protection against competitors with similar technologies. OXiGENE also intends to rely upon trade secret rights to protect other technologies that may be used to discover and validate targets and that may be used to identify and develop novel drugs. The Company seeks protection, in part, through confidentiality and proprietary information agreements.

 

OXiGENE has exclusively licensed from the Arizona Board of Regents, a corporate body of the State of Arizona, acting for and on behalf of Arizona State University (ASU) certain US and international intellectual property rights to develop and commercialize combretastatins and combretastatin derivatives for a range of indications. Such patents expire between 2013 and 2021. We have exclusively licensed from Bristol Myers-Squibb certain US and international intellectual property rights drawn to certain amine salts of combretastatin A-4 phosphate, including the salt form currently being developed by us. The U.S. patents expire in December 2021. The license from Bristol Myers-Squibb includes extensive international protection of the licensed invention.

 

The industry in which the Company is engaged is characterized by rapidly evolving technology and intense competition. The Company’s competitors include, among others, major pharmaceutical, biopharmaceutical and biotechnology companies, many of which have financial, technical and marketing resources significantly greater than those of the Company. In addition, many of the small companies that compete with the Company have also formed collaborative relationships with large, established companies to support research, development, clinical trials and commercialization of products that may be competitive with those of the Company. Academic institutions, governmental agencies and other public and private research organizations are also conducting research activities and seeking patent protection and may commercialize products on their own or through joint ventures or other collaborations.

 

The Company is aware of a limited number of companies involved in the development of VDAs. Such companies include Novartis (in collaboration with Antisoma), AstraZeneca, sanofi-aventis, Myriad, Nereus and MediciNova, all of which have VDAs that management believes are at an earlier or similar stage of clinical development than the Company’s lead drug candidate, ZYBRESTAT.

 

The Company expects that, if any of its products gain regulatory approval for sale, they will compete primarily on the basis of product efficacy, safety, patient convenience, reliability, price and patent protection. The Company’s competitive position will also depend on its ability to attract and retain qualified scientific and other personnel, develop effective proprietary products and implement joint ventures or other alliances with large pharmaceutical companies in order to jointly market and manufacture its products.

 

The Company expects to continue to maintain a relatively small number of executives and other employees. OXiGENE relies as much as possible on consultants and independent contractors for its research, development, pre-clinical testing and clinical trials. As of March 17, 2009 the Company had 34 full-time

employees, of which 25 were engaged in research and development and monitoring of clinical trials. Much of the Company’s pre-clinical testing and clinical trials are subcontracted and performed globally with the assistance of contract research organizations.

 

OXiGENE’s Clinical Trial Advisory Board assesses and evaluates the Company’s clinical trial program. The Scientific Advisory Board discusses and evaluates the Company’s research and development projects. Members of the Clinical Trial Advisory Board and the Scientific Advisory Board are independent and have no involvement with the Company other than serving on such boards. From time to time, however, the institutions or organizations these individuals are associated with may provide the Company with services.

 

The members of the Company’s Clinical Trial Advisory Board are:

 

HILARY CALVERT, MB, is the Clinical Director of the Northern Institute for Cancer Research and Professor of Medical Oncology at the University of Newcastle upon Tyne, England.

 

JEFFREY S. HEIER, M.D. is a Vitreoretinal Specialist at Ophthalmic Consultants of Boston, Co-Director of the Vitreoretinal Fellowship at OCB/Tufts Medical School, and President of the Center for Eye Research and Education in Boston, Massachusetts.

 

STANLEY KAYE, M.D., BSc, is currently Head of the Drug Development Unit and Head of the Section of Medicine at the Royal Marsden Hospital/Institute of Cancer Research, London.

 

HAKAN MELLSTEDT, M.D., Ph.D. (Chairman) is Professor of Oncologic Biotherapy at the Karolinska Institute and Managing Director of Cancer Center Karolinska, Karolinska Institute, Stockholm, Sweden.

 

LEE S. ROSEN, M.D. is the Director of Developmental Therapeutics for the Cancer Institute Medical Group, affiliated with the John Wayne Cancer Institute in Santa Monica.

 

GORDON RUSTIN, M.D. is the Director of Medical Oncology at Mount Vernon Hospital, which is the largest cancer center in the South of England.

 

JAN B. VERMORKEN, M.D., Ph.D. is a professor of Oncology and head of the Department of Medical Oncology of the University Hospital of the University of Antwerp, Belgium.

 

The members of the Company’s Scientific Advisory Board are:

 

ADRIAN L. HARRIS, M.D. is Cancer Research UK Professor of Clinical Oncology at the University of Oxford, and Director of the Cancer Research UK Molecular Oncology Laboratories at the University’s Weatherall Institute of Molecular Medicine.

 

ROBERT S. KERBEL, Ph.D. is a Canada Research Chair in Molecular Medicine and a Professor in the Departments of Medical Biophysics, and Laboratory Medicine & Pathobiology at the University of Toronto.

 

DIETMAR W. SIEMANN, Ph.D. (Chairman) is the John P. Cofrin Professor and Associate Chair for Research in Radiation Oncology at the University of Florida College of Medicine in Gainesville.

 

Some members of the Scientific Advisory Board and the Clinical Trial Advisory Board receive cash compensation. Others have from time to time received, and are expected to continue to receive, options to purchase shares of common stock of the Company. All members are reimbursed for reasonable out-of-pocket expenses incurred in connection with serving on such boards.

 

not historical fact constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause the actual results of the Company to be materially different from the historical results or from any results expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the risk factors set forth below.

 

The Company does not intend to update any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

 

We will be required to raise additional funds to finance our operations and remain a going concern; we may not be able to do so when necessary, and/or the terms of any financings may not be advantageous to us.

 

Our operations to date have consumed substantial amounts of cash. We expect current cash on hand to fund our operations into the fourth quarter of 2009. In order to remain a going concern we will require significant funding. Additional funds may not be available to us on terms that we deem acceptable, or at all. Negative cash flows from our operations are expected to continue over at least the next several years. We do not currently have any commitments to raise additional capital by selling equity, issuing debt or entering into any collaboration that would provide material funding. Our cash utilization amount is highly dependent on the progress of our product development programs, particularly, the results of our pre-clinical studies, the cost timing and outcomes of regulatory approval for our product candidates, the terms and conditions of our contracts with service providers for these programs, the rate of recruitment of patients in our human clinical trials, as well as the timing of hiring development staff to support our product development plans. Many of these factors are not within our control. At the present time, we are not certain whether we will be able to access our Kingsbridge CEFF during fiscal 2009 to augment our existing capital resources as the current market value of our common stock is below the minimum price required for draw downs under our agreement with Kingsbridge. We intend to aggressively pursue other forms of capital infusion including strategic alliances with organizations that have capabilities and/or products that are complementary to our own, in order to continue the development of our product candidates.

 

Our actual capital requirements will depend on numerous factors, including: the progress of and results of our pre-clinical testing and clinical trials of our product candidates under development, including ZYBRESTAT and OXi4503; the progress of our research and development programs; the time and costs expended and required to obtain any necessary or desired regulatory approvals; the resources, if any, that we devote to developing manufacturing methods and advanced technologies; our ability to enter into licensing arrangements, including any unanticipated licensing arrangements that may be necessary to enable us to continue our development and clinical trial programs; the costs and expenses of filing, prosecuting and, if necessary, enforcing our patent claims, or defending against possible claims of infringement by us of third party patent or other technology rights; the cost of commercialization activities and arrangements, if any, undertaken by us; and, if and when approved, the demand for our products, which demand depends in turn on circumstances and uncertainties that cannot be fully known, understood or quantified unless and until the time of approval, including the range of indications for which any product is granted approval.

 

We will need to raise additional funds to support our operations, and such funding may not be available to us on acceptable terms, or at all. If we are unable to raise additional funds when needed, we may not be able to continue development of our product candidates or we could be required to delay, scale back or eliminate some or all of our development programs or cease operations. We may seek to raise additional funds through public or private financing, strategic partnerships or other arrangements. Any additional equity financing may be dilutive to our current stockholders and debt financing, if available, may involve restrictive covenants. If we raise funds through collaborative or licensing arrangements, we may be required to relinquish, on terms that are not favorable to us, rights to some of our technologies or product candidates that we would otherwise seek to develop or commercialize ourselves. Our failure to raise capital when needed may materially harm our business, financial condition and results of operations.

We have a history of losses and we anticipate that we will continue to incur losses in the future.

 

We have experienced net losses every year since our inception and, as of December 31, 2008, had an accumulated deficit of approximately $159,202,000. We anticipate continuing to incur substantial additional losses over at least the next several years due to, among other factors, the need to expend substantial amounts on our continuing clinical trials with respect to our VDA drug candidates, technologies, and anticipated research and development activities and the general and administrative expenses associated with those activities. We have not commercially introduced any product and our potential products are in varying early stages of development and testing. Our ability to attain profitability will depend upon our ability to develop products that are effective and commercially viable, to obtain regulatory approval for the manufacture and sale of our products and to license or otherwise market our products successfully. We may never achieve profitability, and even if we do, we may not be able to sustain being profitable.

 

We have licensed the intellectual property rights to OXi4503 and ZYBRESTAT for ophthalmology to ViDA pursuant to our collaboration with Symphony. The collaboration may not yield sufficient clinical data to allow us to determine whether we should exercise our option to repurchase these programs prior to the expiration of the development period, and even if we decide to exercise that option, we may not have the financial resources to exercise our option in a timely manner.

 

On October 1, 2008, we granted an exclusive license to the intellectual property relating to OXi4503 and ZYBRESTAT for ophthalmology to ViDA in return for a commitment from Holdings to provide up to $25,000,000 of committed capital to advance these programs. Under certain circumstances, the Company may be required to commit up to $15,000,000 to ViDA. As part of the arrangement, we received an option granting us the exclusive right, but not the obligation, to acquire ZYBRESTAT for ophthalmology and OXi4503 at specified points in time during the term of the development period. The development programs under the arrangement are jointly managed by ViDA and us, and we may not agree on decisions that would enable us to develop the potential products successfully. Even if we are in agreement on the development plans, the development efforts may not result in sufficient clinical data to allow us to make a fully informed decision with respect to the exercise of our option. If we do not exercise the purchase option prior to its expiration, then our rights in and with respect to the ViDA programs will terminate, and we will neither have rights to nor be entitled to receive future royalties or revenues for ZYBRESTAT for ophthalmology and OXi4503 licensed to ViDA under the arrangement.

 

If we elect to exercise the purchase option, we will be required to make a substantial payment, which at our election may be paid partially in shares of our common stock. As a result, in order to exercise the option, we will be required to make a substantial payment of cash and possibly issue a substantial number of shares of our common stock. We may be required to raise funds or enter into a financing arrangement or license arrangement with one or more third parties, or to take some combination of these measures, in order to exercise the option, even if we pay a portion of the purchase price with our common stock. Sufficient financing or a licensing arrangement may not be available to us on acceptable terms if and when we decide to exercise the purchase option.

 

The price of our common stock is volatile, and is likely to continue to fluctuate due to reasons beyond our control.

 

The market price of our common stock has been, and likely will continue to be highly volatile. Factors, including our or our competitors’ financial results, clinical trial and research development announcements and government regulatory action affecting our potential products in both the United States and foreign countries, have had, and may continue to have, a significant effect on our results of operations and on the market price of our common stock. We cannot assure you that your investment in our common stock will not fluctuate significantly. One or more of these factors could significantly harm our business and cause a decline in the price of our common stock in the public market. Substantially all of the shares of our common stock issuable upon exercise of outstanding options have been registered for sale and may be sold from time to time hereafter. Such sales, as well as future sales of our common stock by existing stockholders, or the perception that sales could occur, could adversely affect the market price of our common stock. The price and liquidity of

our common stock may also be significantly affected by trading activity and market factors related to the NASDAQ and Stockholm Stock Exchange markets, which factors and the resulting effects may differ between those markets. In order to remain in good standing with both the NASDAQ Global Market and NASDAQ OMX, we must meet the continued listing requirements of these exchanges, which include minimum stockholders’ equity, market value of listed securities or total assets and revenue and minimum bid price of our common stock, among others. There can be no assurance that we will continue to meet the ongoing listing requirements and that our commons stock will remain eligible to be traded on these exchanges.

 

We may fail to select or capitalize on the most scientifically, clinically or commercially promising or profitable indications or therapeutic areas for our product candidates or those that we in-license.

 

We have limited technical, managerial and financial resources to determine the indications on which we should focus the development efforts related to our product candidates. We may make incorrect determinations. Our decisions to allocate our research, management and financial resources toward particular indications or therapeutic areas for our product candidates may not lead to the development of viable commercial products and may divert resources from better opportunities. Similarly, our decisions to delay or terminate drug development programs may also be incorrect and could cause us to miss valuable opportunities. In addition, from time to time we may in-license or otherwise acquire product candidates to supplement our internal development activities. Those activities may use resources that otherwise would be devoted to our internal programs. We cannot assure you that any resources that we devote to acquired or in-licensed programs will result in any products that are superior to our internally developed products.

 

Our product candidates have not completed clinical trials, and may never demonstrate sufficient safety and efficacy in order to do so.

 

Our product candidates are in an early stage of development. In order to achieve profitable operations, we, alone or in collaboration with others, must successfully develop, manufacture, introduce and market our products. The time frame necessary to achieve market success for any individual product is long and uncertain. The products currently under development by us will require significant additional research and development and extensive pre-clinical and clinical testing prior to application for commercial use. A number of companies in the biotechnology and pharmaceutical industries have suffered significant setbacks in clinical trials, even after showing promising results in early or later-stage studies or clinical trials. Although we have obtained some favorable results to date in pre-clinical studies and clinical trials of certain of our potential products, such results may not be indicative of results that will ultimately be obtained in or throughout such clinical trials, and clinical trials may not show any of our products to be safe or capable of producing a desired result. Additionally, we may encounter problems in our clinical trials that will cause us to delay, suspend or terminate those clinical trials. Further, our research or product development efforts or those of our collaborative partners may not be successfully completed, any compounds currently under development by us may not be successfully developed into drugs, any potential products may not receive regulatory approval on a timely basis, if at all, and competitors may develop and bring to market products or technologies that render our potential products obsolete. If any of these problems occur, our business would be materially and adversely affected.

 

We depend heavily on our executive officers, directors, and principal consultants and the loss of their services would materially harm our business.

 

We believe that our success depends, and will likely continue to depend, upon our ability to retain the services of our current executive officers, directors, principal consultants and others, particularly John A. Kollins, our Chief Executive Officer, Dr. David Chaplin, our Chief Scientific Officer, and Dr. Patricia Walicke, our Chief Medical Officer. The loss of the services of any of these individuals could have a material adverse effect on us. In addition, we have established relationships with universities, hospitals and research institutions, which have historically provided, and continue to provide, us with access to research laboratories, clinical trials, facilities and patients. Additionally, we believe that we may, at any time and from time to time, materially depend on the services of consultants and other unaffiliated third parties.

Our industry is highly competitive, and our products may become technologically obsolete.

 

We are engaged in a rapidly evolving field. Competition from other pharmaceutical companies, biotechnology companies and research and academic institutions is intense and expected to increase. Many of those companies and institutions have substantially greater financial, technical and human resources than we do. Those companies and institutions also have substantially greater experience in developing products, in conducting clinical trials, in obtaining regulatory approval and in manufacturing and marketing pharmaceutical products. Our competitors may succeed in obtaining regulatory approval for their products more rapidly than we do. Competitors have developed or are in the process of developing technologies that are, or in the future may be, the basis for competitive products. We are aware of at least one other company that currently has a clinical-stage VDA for use in an oncology indication. Some of these competitive products may have an entirely different approach or means of accomplishing the desired therapeutic effect than products being developed by us. Our competitors may succeed in developing technologies and products that are more effective and/or cost competitive than those being developed by us, or that would render our technology and products less competitive or even obsolete. In addition, one or more of our competitors may achieve product commercialization or patent protection earlier than we do, which could materially adversely affect us.

 

We have licensed in rights to ZYBRESTAT, OXi4503 and other programs from third parties. If our license agreements terminate, we may lose the licensed rights to our product candidates, including ZYBRESTAT and OXi4503, and we may not be able to continue to develop them or, if they are approved, market or commercialize them.

 

We depend on license agreements with third parties for certain intellectual property rights relating to our product candidates, including patent rights. Currently, we have licensed in patent rights from ASU and the Bristol-Myers Squibb Company for ZYBRESTAT and OXi4503 and from Baylor University for other programs. In general, our license agreements require us to make payments and satisfy performance obligations in order to keep these agreements in effect and retain our rights under them. These payment obligations can include upfront fees, maintenance fees, milestones, royalties, patent prosecution expenses, and other fees. These performance obligations typically include diligence obligations. If we fail to pay, be diligent or otherwise perform as required under our license agreements, we could lose our rights under the patents and other intellectual property rights covered by the agreements. While we are not currently aware of any dispute with any licensors under our material agreements with them, if disputes arise under any of our in-licenses, including our in-licenses from ASU and the Bristol-Myers Squibb Company, and Baylor University, we could lose our rights under these agreements. Any such disputes may or may not be resolvable on favorable terms, or at all. Whether or not any disputes of this kind are favorably resolved, our management’s time and attention and our other resources could be consumed by the need to attend to and seek to resolve these disputes and our business could be harmed by the emergence of such a dispute.

 

If we lose our rights under these agreements, we may not be able to conduct any further activities with the product candidate or program that the license covered. If this were to happen, we might not be able to develop our product candidates further, or following regulatory approval, if any, we might be prohibited from marketing or commercializing them. In particular, patents previously licensed to us might after termination be used to stop us from conducting these activities.

 

We depend extensively on our patents and proprietary technology, and we must protect those assets in order to preserve our business.

 

To date, our principal product candidates have been based on certain previously known compounds. We anticipate that the products we develop in the future may include or be based on the same or other compounds owned or produced by unaffiliated parties, as well as synthetic compounds we may discover. Although we expect to seek patent protection for any compounds we discover and/or for any specific uses we discover for new or previously known compounds, any or all of them may not be subject to effective patent protection. Further, the development of regimens for the administration of pharmaceuticals, which generally involve specifications for the frequency, timing and amount of dosages, has been, and we believe, may continue to be,

important to our efforts, although those processes, as such, may not be patentable. In addition, the issued patents may be declared invalid or our competitors may find ways to avoid the claims in the patents.

 

Our success will depend, in part, on our ability to obtain patents, protect our trade secrets and operate without infringing on the proprietary rights of others. As of December 31, 2008, we were the holder, sole assignee or co-assignee of twenty five (25) granted United States patents, thirty (30) pending United States patent applications, and granted patents and/or pending applications in several other major markets, including the European Union, Canada and Japan. The patent position of pharmaceutical and biotechnology firms like us generally is highly uncertain and involves complex legal and factual questions, resulting in both an apparent inconsistency regarding the breadth of claims allowed in United States patents and general uncertainty as to their legal interpretation and enforceability. Accordingly, patent applications assigned or exclusively licensed to us may not result in patents being issued, any issued patents assigned or exclusively licensed to us may not provide us with competitive protection or may be challenged by others, and the current or future granted patents of others may have an adverse effect on our ability to do business and achieve profitability. Moreover, since some of the basic research relating to one or more of our patent applications and/or patents was performed at various universities and/or funded by grants, one or more universities, employees of such universities and/or grantors could assert that they have certain rights in such research and any resulting products. Further, others may independently develop similar products, may duplicate our products, or may design around our patent rights. In addition, as a result of the assertion of rights by a third party or otherwise, we may be required to obtain licenses to patents or other proprietary rights of others in or outside of the United States. Any licenses required under any such patents or proprietary rights may not be made available on terms acceptable to us, if at all. If we do not obtain such licenses, we could encounter delays in product market introductions while we attempt to design around such patents or could find that the development, manufacture or sale of products requiring such licenses is foreclosed. In addition, we could incur substantial costs in defending ourselves in suits brought against us or in connection with patents to which we hold licenses or in bringing suit to protect our own patents against infringement.

 

We require employees, Scientific Advisory Board members, Clinical Trial Advisory Board members, and the institutions that perform our pre-clinical and clinical trials to enter into confidentiality agreements with us. Those agreements provide that all confidential information developed or made known to the individual during the course of the relationship with us is to be kept confidential and not to be disclosed to third parties, except in specific circumstances. Any such agreement may not provide meaningful protection for our trade secrets or other confidential information in the event of unauthorized use or disclosure of such information.

 

If third parties on which we rely for clinical trials do not perform as contractually required or as we expect, we may not be able to obtain regulatory approval for or commercialize our product candidates.

 

We do not have the ability to independently conduct the clinical trials required to obtain regulatory approval for our product candidates. We depend on independent clinical investigators and, in some cases, contract research organizations and other third-party service providers to conduct the clinical trials of our product candidates and expect to continue to do so. We rely heavily on these parties for successful execution of our clinical trials and we do not control many aspects of their activities. Nonetheless, we are responsible for confirming that each of our clinical trials is conducted in accordance with its general investigational plan and protocol. Moreover, the FDA and corresponding foreign regulatory authorities require us and our clinical investigators to comply with regulations and standards, commonly referred to as good clinical practices, for conducting and recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the trial participants are adequately protected. Our reliance on third parties that we do not control does not relieve us of these responsibilities and requirements. Third parties may not complete activities on schedule or may not conduct our clinical trials in accordance with regulatory requirements or the respective trial plans and protocols. The failure of these third parties to carry out their obligations could delay or prevent the development, approval and commercialization of our product candidates or result in enforcement action against us.

Our products may result in product liability exposure, and it is uncertain whether our insurance coverage will be sufficient to cover any claims.

 

The use of our product candidates in clinical trials and for commercial applications, if any, may expose us to liability claims, in the event such product candidates cause injury or disease, or result in adverse effects. These claims could be made directly by health care institutions, contract laboratories, patients or others using such products. Although we have obtained liability insurance coverage for our ongoing clinical trials, this coverage may not be in amounts sufficient to protect us from any product liability claims or product recalls which could have a material adverse effect on the financial condition and prospects of our Company. Further, adverse product and similar liability claims could negatively impact our ability to obtain or maintain regulatory approvals for our technology and product candidates under development.

 

Our products are subject to extensive government regulation, which results in uncertainties and delays in the progress of our products through the clinical trial process.

 

Our research and development activities, pre-clinical testing and clinical trials, and the manufacturing and marketing of our products are subject to extensive regulation by numerous governmental authorities in the United States and other countries. Pre-clinical testing and clinical trials and manufacturing and marketing of our products are and will continue to be subject to the rigorous testing and approval requirements and standards of the FDA and other corresponding foreign regulatory authorities. Clinical testing and the regulatory review process generally take many years and require the expenditure of substantial resources. In addition, delays or rejections may be encountered during the period of product development, clinical testing and FDA regulatory review of each submitted application. Similar delays may also be encountered in foreign countries. Even after such time and expenditures, regulatory approval may not be obtained for any potential products developed by us, and a potential product, if approved in one country, may not be approved in other countries. Moreover, even if regulatory approval of a potential product is granted, such approval may impose significant limitations on the indicated uses for which that product may be marketed. Further, even if such regulatory approval is obtained, a marketed product, its manufacturer and its manufacturing facilities are subject to continual review and periodic inspections, and later discovery of previously unknown problems, such as undiscovered side effects, or manufacturing problems, may result in restrictions on such product, manufacturer or facility, including a possible withdrawal of the product from the market. Failure to comply with the applicable regulatory requirements can, among other things, result in fines, suspensions of regulatory approvals, product recalls, operating restrictions, injunctions and criminal prosecution. Moreover, continued cost control initiatives by third party health care payers, including government programs such as Medicare may affect the financial ability and willingness of patients and their health care providers to utilize certain therapies which, in turn, could have a material adverse effect on us.

 

We have no manufacturing capacity, and we have relied and expect to continue to rely on third-party manufacturers to produce our product candidates.

 

We do not own or operate manufacturing facilities for the production of clinical or commercial quantities of our product candidates or any of the compounds that we are testing in our pre-clinical programs, and we lack the resources and the capabilities to do so. As a result, we currently rely, and we expect to rely in the future, on third-party manufacturers to supply our product candidates. Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured product candidates or products ourselves, including:

 

 

 

If we do not maintain or develop important manufacturing relationships, we may fail to find replacement manufacturers or develop our own manufacturing capabilities which could delay or impair our ability to obtain regulatory approval for our products and substantially increase our costs or deplete profit margins, if any. If we do find replacement manufacturers, we may not be able to enter into agreements with them on terms and conditions favorable to us, and there could be a substantial delay before new facilities could be qualified and registered with the FDA and foreign regulatory authorities.

 

The FDA and foreign regulatory authorities require manufacturers to register manufacturing facilities. The FDA and corresponding foreign regulators also inspect these facilities to confirm compliance with current good manufacturing practices, or cGMPs. Contract manufacturers may face manufacturing or quality control problems causing drug substance production and shipment delays or a situation where the contractor may not be able to maintain compliance with the applicable cGMP requirements. Any failure to comply with cGMP requirements or other FDA and comparable foreign regulatory requirements could adversely affect our clinical research activities and our ability to develop our product candidates and market our products after approval.

 

Our current and anticipated future dependence upon others for the manufacture of our product candidates may adversely affect our future profit margins and our ability to develop our product candidates and commercialize any products that receive regulatory approval on a timely basis.

 

Our restated certificate of incorporation, our amended and restated by-laws, our stockholder rights agreement and Delaware law could defer a change of our management which could discourage or delay offers to acquire us.

 

Certain provisions of Delaware law and of our restated certificate of incorporation, as amended, and amended and restated by-laws could discourage or make it more difficult to accomplish a proxy contest or other change in our management or the acquisition of control by a holder of a substantial amount of our voting stock. It is possible that these provisions could make it more difficult to accomplish, or could deter, transactions that stockholders may otherwise consider to be in their best interests or the best interests of OXiGENE. Further, the rights issued under the stockholder rights agreement would cause substantial dilution to a person or group that attempts to acquire us on terms not approved in advance by our Board of Directors.

 

The uncertainty associated with pharmaceutical reimbursement and related matters may adversely affect our business.

 

Upon the marketing approval of any one or more of our products, if at all, sales of our products will depend significantly on the extent to which reimbursement for our products and related treatments will be available from government health programs, private health insurers and other third-party payers. Third party payers and governmental health programs are increasingly attempting to limit and/or regulate the price of medical products and services. The MMA, as well as other changes in governmental or in private third-party payers’ reimbursement policies may reduce or eliminate any currently expected reimbursement. Decreases in third-party reimbursement for our products could reduce physician usage of the product and have a material adverse effect on our product sales, results of operations and financial condition.

 

On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009. This law provides funding for the federal government to compare the effectiveness of different treatments for the same illness. A plan for the research will be developed by the Department of Health and Human Services, the Agency for Healthcare Research and Quality and the National Institutes for Health, and periodic reports on the status of the research and related expenditures will be made to Congress. Although the results of the comparative effectiveness studies are not intended to mandate any policies for public or private payers, it is not clear what, if any, effect the research will have on the sales of our products if any such product or the condition that it is intended to treat is the subject of a study. Decreases in third-party reimbursement for our products or a decision by a third-party payer to not cover our products could reduce

physician usage of the product and have a material adverse effect on our product sales, results of operations and financial condition.

 

 

 

 

 

 

SUMMARY FINANCIAL INFORMATION

 

The following table sets forth financial data with respect to the Company for each of the five years in the period ended December 31, 2008. The selected financial data for each of the five years in the period ended December 31, 2008 has been derived from the audited financial statements of the Company. The information below should be read in conjunction with the financial statements (and notes thereto) and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in Item 7 of this Annual Report on Form 10-K.

 

 

The amount related to loss attributed to non controlling interest in Symphony ViDA, Inc. represents the loss for the Symphony ViDA, Inc. entity from its inception in October 2008 through December 31, 2008 in

connection with the strategic collaboration we executed with Symphony Capital LLC (“Symphony”) in October 2008. The investments reported as held by Symphony ViDA, Inc. represent the fair value of amounts held by Symphony ViDA, Inc. which are dedicated to fund ZYBRESTAT for ophthalmology and OXi4503 licensed to Holdings related to the same strategic collaboration.

 

We believe that the ongoing FACT trial in ATC, if successful, will provide a basis for us to seek marketing approval of ZYBRESTAT in ATC, and that the ongoing ZYBRESTAT study program will establish a compelling rationale for further development of ZYBRESTAT as a treatment for:

 

(v) other forms of recurrent, metastatic thyroid cancer;

 

(vi) other aggressive and difficult-to-treat malignancies; and

 

(vii) use in combination with chemotherapy in a variety of solid tumors, particularly those in which carboplatin and/or paclitaxel chemotherapy are commonly used; and

 

(viii) use in combination with commonly used anti-angiogenic drugs, such as bevacizumab that act via VEGF pathway inhibition, in various solid tumor indications.

 

We believe these areas for potential further development collectively represent a large potential commercial market opportunity that includes cancers of the thyroid, ovary, kidney, liver, head and neck, breast, lung, skin, brain, colon and rectum.

 

In addition, based upon pre-clinical results first published by its collaborators in the November 2007 online issue of the journal BLOOD, as well as pre-clinical data to be presented in April 2009 at the annual meeting of the American Association of Cancer Research (AACR), we believe that ZYBRESTAT and our other VDA product candidates, particularly OXi4503, may also have utility in the treatment of hematological malignancies or “liquid tumors,” such as acute myeloid leukemia.

 

In addition to developing ZYBRESTAT as an intravenously administered therapy for oncology indications, in conjunction with Symphony we are undertaking an ophthalmology research and development program with ZYBRESTAT, the objective of which is to develop a topical formulation of ZYBRESTAT for ophthalmological diseases and conditions that are characterized by abnormal blood vessel growth within the eye that results in loss of vision. We believe that a safe, effective and convenient topically-administered anti-vascular therapeutic would have advantages over currently approved anti-vascular, ophthalmological therapeutics, which must be injected directly into patients’ eyes, in some cases on a chronic monthly basis. We are currently conducting pre-clinical studies and plans to initiate in the first half of 2009 at least one human clinical trial with intravenously-administered ZYBRESTAT to (i) confirm the therapeutic utility of ZYBRESTAT in an ophthalmologic indication; (ii) determine tissue concentrations of drug required for activity; and (iii) further evaluate the feasibility of developing a topical formulation of ZYBRESTAT for ophthalmological indications. To date, we have completed pre-clinical experiments demonstrating that ZYBRESTAT has activity in six different pre-clinical ophthalmology models, including a model in which ZYBRESTAT was combined with an approved anti-angiogenic drug. We have also completed multiple pre-clinical studies suggesting that ZYBRESTAT, when applied topically to the surface of the eye at doses anticipated to be tolerated and non-toxic, penetrates to the retina and choroid in quantities that we believe should be more than sufficient for therapeutic activity. Finally, we have completed and reported results at the 2007 annual meeting of the Association for Research in Vision and Ophthalmology (ARVO) from a Phase II study in patients with myopic macular degeneration in which all patients in the study met the primary clinical endpoint of vision stabilization three months after study entry.

 

In conjunction with Symphony, we are currently evaluating a second-generation VDA product candidate, OXi4503, in a Phase I clinical trial in patients with advanced solid tumors, and based on what we believe to be compelling pre-clinical study results, plan to file an IND for this product candidate and initiate additional Phase Ib studies beginning in the first half of 2009. In pre-clinical studies, OXi4503 has shown potent anti-tumor activity against solid tumors and acute myeloid leukemia, both as a single agent and in combination with other cancer treatment modalities. We believe that OXi4503 is differentiated from other VDAs by its dual-action activity. OXi4503 has demonstrated potent vascular disrupting effects on tumor vasculature, as well as direct cytotoxic effects on tumor cells that arise from metabolism of the drug by oxidative enzymes, which are elevated in certain tumors and tissues, (e.g., leukemia, hepatic tumors, and melanoma) to a cytotoxic orthoquinone chemical species.

 

As described in item 1, Business under “— Symphony Transaction”, in October 2008, we announced a strategic collaboration with Symphony Capital Partners, L.P. (Symphony), a private-equity firm, under which

Symphony agreed to provide up to $40,000,000 in funding to support the advancement of ZYBRETAT for oncology, ZYBRESTAT for ophthalmology and OXi4503. Under the transaction, we granted Symphony ViDA, Inc., a newly-created drug development company, exclusive licenses to ZYBRESTAT for use in ophthalmologic indications and OXi4503. We maintain an exclusive option, but not the obligation, to purchase the assets of Symphony ViDA, Inc.

 

Finally, under a sponsored research agreement with Baylor University, we are pursuing discovery and development of novel, small-molecule therapeutics for the treatment of cancer, including a small-molecule cathepsin-L inhibitors and hypoxia-activated VDAs. Cathepsin-L is an enzyme involved in protein degradation and has been shown to be closely involved in the processes of angiogenesis and metastasis. Small molecule inhibitors may have the potential to slow tumor growth and metastasis in a manner we believe that could be complementary with its VDA therapeutics. We also believe that its hypoxia-activated VDAs could serve as line-extension products to ZYBRESTAT and/or OXi4503.

 

Financial Resources

 

We have generated a cumulative net loss of approximately $159,202,000 for the period from our inception through December 31, 2008. We expect to incur significant additional operating losses over at least the next several years, principally as a result of our continuing clinical trials and anticipated research and development expenditures. The principal source of our working capital to date has been the proceeds of private and public equity financings and to a lesser extent the exercise of warrants and stock options. We currently have no material amount of licensing or other fee income. We expect current cash on hand to fund operations into the fourth quarter of 2009.

 

We will require significant additional funding to remain a going concern and to fund operations until such time, if ever, we become profitable. However, there can be no assurance that adequate additional financing will be available to us on terms that we deem acceptable, if at all. Our failure to successfully complete human clinical trials, develop and market products over the next several years, or to realize product revenues, would materially adversely affect our business, financial condition and results of operations. Royalties or other revenue generated by us from commercial sales of our potential products are not expected for several years, if at all.

 

We expect to continue to pursue strategic alliances and consider collaborative development opportunities that may provide us with access to organizations that have capabilities and/or products that are complementary to our own, in order to continue the development of our potential product candidates. However, there can be no assurances that we will complete any strategic alliances or collaborative development agreements, and the terms of such arrangements may not be advantageous to us.

 

As of December 31, 2008, we had approximately $18,918,000 in cash, cash equivalents and marketable securities. During our fiscal 2008, we primarily invested in commercial paper, investment-grade corporate bonds, asset backed securities and money market funds. In fiscal 2009, we plan to employ an even more conservative investment strategy limited to obligations issued by U.S. treasury and federal agencies, obligations of commercial banks and commercial paper. Our investment objectives are to preserve principal, maintain a high degree of liquidity to meet operating needs and obtain competitive returns subject to prevailing market conditions. As of December 31, 2008, the weighted average days to maturity of our available-for-sale marketable securities was approximately 135 days, and the yield to maturity based on the cost of those investments was approximately 4.6%. In addition, investments held by Symphony ViDA Inc. were $14,663,000 as of December 31, 2008. These funds are dedicated to fund ZYBRESTAT for ophthalmology and OXi4503 licensed to Symphony ViDA, Inc. in connection with the collaborative arrangement completed in October 2008. Symphony ViDA has an investment strategy and objectives similar to ours. We expect that income from our investments may decrease in fiscal 2009 as compared to fiscal 2008 due to an expected lower average balance of invested funds and a lower average yield.

 

On October 1, 2008, we announced a strategic collaboration with Symphony Capital Partners, L.P. (Symphony), a private-equity firm, under which Symphony agreed to provide up to $40,000,000 in funding to support the advancement of ZYBRESTAT for oncology, ZYBRESTAT for ophthalmology and OXi4503. We

issued to Holdings, pursuant to the Stock and Warrant Purchase Agreement, an aggregate of 13,513,514 shares of our common stock and warrants at a price of 1.11 per share which was the closing price of OXiGENE common stock on the NASDAQ Global market on September 31, 2008. Under this collaboration, we entered into a series of related agreements with Symphony Capital LLC, Symphony ViDA, Inc., or ViDA, Symphony ViDA Holdings LLC, or Holdings, and related entities (for the list of agreements see Notes to Financial Statements No 1, Description of Business and Significant Accounting Policies under License Agreements). Pursuant to these agreements, Holdings has formed and capitalized ViDA, a Delaware corporation, in order (a) to hold certain intellectual property related to two of our product candidates, ZYBRESTAT for use in ophthalmologic indications and OXi4503, referred to as the “Programs,” which were exclusively licensed to ViDA under the Novated and Restated Technology License Agreement and (b) to fund commitments of up to $25,000,000. The funding will support pre-clinical and clinical development conducted by us, on behalf of ViDA, for ZYBRESTAT for ophthalmology and OXi4503. Under certain circumstances, we may be required to commit up to $15,000,000 to ViDA. We are undertaking an ophthalmology research and development program with ZYBRESTAT, the objective of which is to develop a topical formulation of ZYBRESTAT for ophthalmologic diseases and conditions that are characterized by abnormal blood vessel growth within the eye that results in loss of vision. We are currently conducting pre-clinical studies and plan to undertake clinical trials with the objectives of (i) confirming the utility of ZYBRESTAT in at least one ophthalmologic indication and tissue concentrations of drug required for biological activity; and (ii) demonstrating the feasibility of developing a topical formulation of ZYBRESTAT for ophthalmological indications. OXi4503 is currently in a Phase I clinical trial in patients with advanced solid tumors. Based on favorable results in pre-clinical studies, we are planning further clinical trials with OXi4503.

 

In February 2008, we entered into a Committed Equity Financing Facility (“CEFF”) with Kingsbridge Capital, pursuant to which Kingsbridge committed to purchase, subject to certain conditions, up to 5,708,035 shares of our common stock or up to an aggregate of $40,000,000 during the next three years. Under the CEFF, we are able to draw down in tranches of up to a maximum of 3.5 percent of our closing market value at the time of the draw down or the alternative draw down amount calculated pursuant to the Common Stock Purchase Agreement whichever is less, subject to certain conditions. The purchase price of these shares is discounted between 5 to 12 percent from the volume weighted average price of our common stock for each of the eight trading days following the election to sell shares. Kingsbridge is not obligated to purchase shares at prices below $1.25 per share or at a price below 85% of the closing share price of our stock in the trading day immediately preceding the commencement of the draw down, whichever is higher. In connection with the CEFF, we issued a warrant to Kingsbridge to purchase 250,000 shares of our common stock at a price of $2.74 per share exercisable beginning six months after February 19, 2008 for a period of five years thereafter. We have filed a registration statement on Form S-1 to register the resale by Kingsbridge of the shares issuable to Kingsbridge under the CEFF, which was declared effective by the SEC on May 15, 2008. In June 2008, we completed our first drawdown under the CEFF, netting approximately $900,000. In the near future, additional draw downs are not likely due to the current stock price.

 

The actual and planned uses of proceeds from all of the above financings include the continued development of our two lead product candidates, ZYBRESTAT and OXi4503, in oncology and ophthalmology.

 

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

 

Critical Accounting Policies and Significant Judgments and Estimates

 

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles.

The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments, including those related to intangible assets. We base our estimates on historical experience and on various other factors that are believed to be appropriate under the circumstances, the results of which form the basis for making the judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

 

While our significant accounting policies are more fully described in Note 1 to our financial statements included in this report, we believe the following accounting policies are most critical to aid in fully understanding and evaluating our reported financial results.

 

Available-for-Sale Securities

 

We view our marketable securities as available for use in our current operations, and accordingly designate our marketable securities as available-for-sale. Available-for-sale securities are carried at fair value with the unrealized gains and losses, net of tax, if any, reported as accumulated other comprehensive income (loss) in stockholders’ equity. We review the status of the unrealized gains and losses of our available-for-sale marketable securities on a regular basis. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in investment income. Interest and dividends on securities classified as available-for-sale are included in investment income. Securities in an unrealized loss position deemed not to be other-than-temporarily impaired, due to management’s positive intent and ability to hold the securities until anticipated recovery, with maturation greater than twelve months are classified as long-term assets.

 

Accrued Clinical Costs

 

We charge all research and development expenses, both internal and external costs, to operations as incurred. Our research and development costs represent expenses incurred from the engagement of outside professional service organizations, product manufacturers and consultants associated with the development of our potential product candidates. We recognize expense associated with these arrangements based on the completion of activities as specified in the applicable contracts. Costs incurred under fixed fee contracts are accrued ratably over the contract period absent any knowledge that the services will be performed other than ratably. Costs incurred under contracts with clinical trial sites and principal investigators are generally accrued on a patients-treated basis consistent with the terms outlined in the contract. In determining costs incurred on some of these programs, we take into consideration a number of factors, including estimates and input provided by our internal program managers. Upon termination of such contracts, we are normally only liable for costs incurred or committed to date. As a result, accrued research and development expenses represent our estimated contractual liability to outside service providers at any of the relevant times. Any advance payments for goods or services to be used or rendered in future research and development activities pursuant to an executory contractual arrangement are properly classified as prepaid until such goods or services are rendered.

 

Impairment of Long-lived Assets

 

On August 2, 1999, we entered into an exclusive license for the commercial development, use and sale of products or services covered by certain patent rights owned by Arizona State University. The present value of the amount payable under the license agreement has been capitalized based on a discounted cash flow model and is being amortized over the term of the agreement (approximately 15.5 years). Under SFAS 144, management is required to perform an impairment analysis of its long-lived assets if triggering events occur. We review for such triggering events periodically and, even though triggering events such as a going concern opinion and continuing losses exist, we have determined that there is no impairment to this asset during the years ended up to and including December 31, 2008. In addition, the agreement provides for additional payments in connection with the license arrangement upon the initiation of certain clinical trials or the completion of certain regulatory approvals, which payments could be accelerated upon the achievement of certain financial milestones as defined in the agreement. To date no clinical trials triggering payments under

the agreement have been completed and no regulatory approvals have been obtained. We expense these payments to research and development in the period the criteria, as defined in the agreement, are satisfied.

 

Stock-Based Compensation

 

Effective January 1, 2006, we adopted Statement of Financial Accounting Standard No. 123R (SFAS 123R), Share-Based Payment , which requires the expense recognition of the estimated fair value of all share based payments issued to employees. Prior to the adoption of SFAS 123R, the estimated fair value associated with such awards was not recorded as an expense, but rather was disclosed in a footnote to our financial statements.

 

The valuation of employee stock options is an inherently subjective process, since market values are generally not available for long-term, non-transferable employee stock options. Accordingly, an option pricing model is utilized to derive an estimated fair value. In calculating the estimated fair value of our stock options, we use the Black-Scholes pricing model, which requires the consideration of the following six variables for purposes of estimating fair value:

 

 

Stock Option Exercise Price and Grant Date Price of our common stock — The closing market price of our common stock on the date of grant.

 

Expected Term — The expected term of options represents the period of time for which the options are expected to be outstanding and is based on an analysis of historical behavior of option plan participants over time .

 

Expected Volatility — The expected volatility is a measure of the amount by which our stock price is expected to fluctuate during the term of the options granted. We determine the expected volatility based on the historical volatility of our common stock over a period commensurate with the option’s expected term.

 

Expected Dividends — We have never declared or paid any cash dividends on our common stock and do not expect to do so in the foreseeable future. Accordingly, we use an expected dividend yield of zero to calculate the grant date fair value of a stock option.

 

Risk-Free Interest Rate — The risk-free interest rate is the implied yield available on U.S. Treasury issues with a remaining life consistent with the option’s expected term on the date of grant.

 

Of the variables above, the selection of an expected term and expected stock price volatility are the most subjective. In accordance with the transition provisions of SFAS 123R, the grant date estimates of fair value associated with awards prior to January 1, 2006 , which were also calculated using the Black-Scholes option pricing model, have not been changed. The specific valuation assumptions that were utilized for purposes of deriving an estimate of fair value at the time that prior awards were issued are as disclosed in our prior annual reports on Form 10-K, as filed with the SEC.

 

Upon adoption of SFAS 123R, we were also required to estimate the level of award forfeitures expected to occur and record compensation expense only for those awards that are ultimately expected to vest. This requirement applies to all awards that are not yet vested, including awards granted prior to January 1, 2006. Accordingly, we performed a historical analysis of option awards that were forfeited prior to vesting, and

ultimately recorded total stock option expense that reflected this estimated forfeiture rate. In our calculation, we segregated participants into two distinct groups, (1) directors and officers and (2) employees. This analysis is re-evaluated quarterly and the forfeiture rate is adjusted as necessary. Ultimately, the actual expense recognized over the vesting period will only be for those shares that vest. Changes in the inputs and assumptions, as described above, can materially affect the measure of estimated fair value of our share-based compensation.

 

Consolidation of Variable Interest Entity

 

On October 1, 2008, we announced a strategic collaboration with Symphony Capital Partners, L.P. (Symphony), a private-equity firm, under which Symphony agreed to provide up to $40,000,000 in funding to support the advancement of ZYBRESTAT for oncology, ZBYRESTAT for ophthalmology and OXi4503. Under this collaboration, we entered into a series of related agreements with Symphony Capital LLC, Symphony ViDA, Inc., or ViDA, Symphony ViDA Holdings LLC, or Holdings, and related entities (for a list of the agreements see Notes to Financial Statements No. 1, Description of Business and Significant Accounting Policies under Consolidation of Variable Interest Entity).

 

Pursuant to these agreements, Holdings has formed and capitalized ViDA, a Delaware corporation, in order (a) to hold certain intellectual property related to two of our product candidates, ZYBRESTAT for use in ophthalmologic indications and OXi4503, referred to as the “Programs,” which were exclusively licensed to ViDA under the Novated and Restated Technology License Agreement and (b) to fund commitments of up to $25,000,000. The funding will support pre-clinical and clinical development conducted by us, on behalf of ViDA, for ZYBRESTAT for ophthalmology and OXi4503. Under certain circumstances, we may be required to commit up to $15,000,000 to ViDA. Our requirement for additional funding will be determined by a number of factors, including among others, if at all, the determination of the need for more funding and the written recommendation of the Joint Development Committee (JDC), the approval of the Symphony ViDA Board, the probability and amount of the additional funding provided by Holdings, if any, the probability that we may provide optional funding (“Optional Company Funding”), and the timing of meeting the potential obligations.

 

Pursuant to the agreements, we continue to be primarily responsible for all pre-clinical, and clinical development efforts as well as maintenance of the intellectual property portfolio for ZYBRESTAT for ophthalmology and OXi4503. We and ViDA have established a development committee to oversee ZYBRESTAT for ophthalmology and OXi4503. We participate in the development committee and have the right to appoint one of the five directors of ViDA. We have incurred and may continue to incur expenses related to ZYBRESTAT for ophthalmology and OXi4503 that are not funded by ViDA. The Purchase Option Agreement provides for the exclusive right, but not the obligation, for us to repurchase both Programs by acquiring 100% of the equity of ViDA at any time between October 2, 2009 and March 31, 2012 for an amount equal to two times the amount of capital actually invested by Symphony in ViDA, less certain amounts. The purchase price is payable in cash or a combination of cash and shares of our common stock (up to 20% of the purchase price or 10% of the total number of shares of our common stock outstanding at such time), in our sole discretion, subject to certain limitations. If we do not exercise our exclusive right with respect to the purchase of ZYBRESTAT for ophthalmology and OXi4503 licensed under the agreement with ViDA, rights to ZYBRESTAT for ophthalmology and OXi4503 at the end of the development period will remain with ViDA. In consideration for the Purchase Option, we issued to Holdings 3,603,604 shares of our common stock and paid approximately $1,750,000 for structuring fees and related expenses to Symphony Capital.

 

Under FASB Interpretation No. 46 Revised (FIN 46R), Consolidation of Variable Interest Entities, a variable interest entity (VIE) is (1) an entity that has equity that is insufficient to permit the entity to finance its activities without additional subordinated financial support, or (2) an entity that has equity investors that cannot make significant decisions about the entity’s operations or that do not absorb their proportionate share of the expected losses or do not receive the expected residual returns of the entity. FIN 46R requires a VIE to be consolidated by the party that is deemed to be the primary beneficiary, which is the party that has exposure to a majority of the potential variability in the VIE’s outcomes. The application of FIN 46R to a given arrangement requires significant management judgment.

We have consolidated the financial position and results of operations of ViDA in accordance with FIN 46R. We believe ViDA is by design a VIE because we have a purchase option to acquire its outstanding voting stock at prices that are fixed based upon the date the option is exercised. The fixed nature of the purchase option price limits Symphony’s returns, as the investor in ViDA.

 

FIN 46R deems parties to be de facto agents if they cannot sell, transfer, or encumber their interests without the prior approval of an enterprise. Symphony is considered to be a de facto agent of the Company pursuant to this provision. Further, because we and Symphony, are a related party group, based on their direct investment in our common stock, we absorb a majority of ViDA’s variability. We evaluated whether, pursuant to FIN 46R’s requirements, we are most closely associated with ViDA and concluded that we are most closely associated with ViDA and should consolidate ViDA because (1) we originally developed the technology that was licensed to ViDA, (2) we will continue to oversee and monitor the development program and serve as the IND sponsor for any trials relating to the agreement, (3) our employees and contractors will continue to perform substantially all of the development work, (4) we have the ability to make decisions that have a significant effect on the success of ViDA’s activities through our representation on the ViDA Board and the Joint Development Committee, (5) ViDA’s operations are substantially similar to our activities, and (6) through the Purchase Option, we have the ability to meaningfully participate in the benefits of a successful development effort.

 

Symphony will be required to absorb the development risk for its equity investment in ViDA. Pursuant to FIN 46R’s requirements, Symphony’s equity investment in ViDA is classified as noncontrolling interest in our consolidated balance sheets. The noncontrolling interest held by Symphony has been reduced by the $4,000,000 fair value of the common stock it received in consideration for the Purchase Option and the pro rata portion of the $1,750,000 of fees and expenses we paid upon the transaction’s closing as the total consideration provided by us reduces Symphony’s at-risk equity investment in ViDA. While we perform the research and development on behalf of ViDA, our development risk is limited to the consideration we provided to Symphony (the common stock and fees).

 

Losses incurred by ViDA are charged to the noncontrolling interest. Net losses incurred by ViDA and charged to the noncontrolling interest were $520,000 for the year ended December 31, 2008. At December 31, 2008, the noncontrolling interest balance was $9,432,000. As of December 31, 2008, the investments held by ViDA were $14,663,000, which we currently expect to finance ViDA programs at least into the first quarter of fiscal 2010. As noted above, our agreements with Symphony provide for additional funding commitments by both Symphony and us, subject to certain conditions.

 

Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in the Company’s Common Stock

 

In connection with the strategic collaboration with Symphony Capital Partners, LP (Symphony) in October 2008 discussed above, we issued to Holdings, a warrant (the “Direct Investment Warrant”) to purchase 11,281,877 shares of our common stock at $1.11 per share, which was the closing price of our common stock on the NASDAQ Global Market on September 30, 2008, the day before the consummation of the Symphony transaction. The term of this warrant was ten years from the date of issuance or until October 17, 2018. This warrant was exercised on December 30, 2008 subsequent to the approval of issuance of common stock underlying the warrant by our stockholders on December 9, 2008.

 

In addition, we agreed that should the development committee of ViDA determine that ViDA needs additional funding, and that funding is provided by Holdings, we would issue shares of our common stock having a value of up to $1,000,000 (the “Additional Investment Shares”) on the date of issuance. The number of shares required to meet this obligation will be based on the closing price of our common stock on the NASDAQ Global Market on the additional closing date. Because the closing price of our common stock as of the additional closing date is not yet determinable, the number of potential shares issuable to Symphony is not yet known, and depending on our stock price, may be greater than the number of shares that we currently have authorized . The obligation to issue the Additional Investment Shares expires no later than the term of the strategic collaboration or March 31, 2012.

In connection with the CEFF described above in the Financial Resources section of Item 7, we issued a warrant (the “CEFF Warrant”) to Kingsbridge Capital to purchase 250,000 shares of our common stock at a price of $2.74 per share exercisable beginning August 19, 2008 for a period of five years thereafter, or until August 19, 2013.

 

Due to the indeterminable number of shares required to meet the Additional Investment Shares obligation we have determined that we may not have sufficient authorized shares to settle our outstanding financial instruments. Pursuant to Emerging Issues Task Force No. 00-19 (“EITF 00-19”) Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in, a Company’s Own Stock , our policy with regard to settling outstanding financial instruments is to settle those with the earliest maturity date first which essentially sets the order of preference for settling the awards. In accordance with FASB Interpretation No. 133, Accounting for Derivative Instruments and Hedging Activities (“FASB 133”) and EITF 00-19, we account for the Direct Investment Warrant, Additional Investment Shares and CEFF Warrant (collectively the “Derivative Instruments”) as liabilities. We began the treatment of these Derivative Instruments as liabilities as of October 17, 2008, the initial funding and effective date of the Symphony transaction. Establishing the value of these Derivative Instruments is an inherently subjective process. The value of both the Direct Investment Warrant and the CEFF Warrant are determined using the Black-Scholes option model. The value of the Additional Investment Shares is determined by considering a number of factors, including among others, the probability and amount of the additional funding provided by Holdings, if any, the probability that OXiGENE may provide the additional funding amount, and the timing of meeting the potential obligation. Differences in value from one measurement date to another are recorded as other income/expense in our statement of operations.

 

In October 2008, we recorded a $9,424,000 liability for the fair value of the Derivative Instruments. We remeasured the Derivative Instruments as of December 31, 2008 resulting in a gain of $3,335,000, which is in our statement of operations. The gain primarily represents the change in fair value of the Direct Investment and the Kingsbridge CEFF warrants.

 

Recent Accounting Pronouncements

 

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements , an amendment of ARB No. 51 (SFAS 160). SFAS 160 changes the accounting for noncontrolling (minority) interests in consolidated financial statements including the requirements to classify noncontrolling interests as a component of consolidated stockholders’ equity, and the elimination of “minority interest” accounting in results of operations with earnings attributable to noncontrolling interests reported as part of consolidated earnings. Additionally, SFAS 160 revises the accounting for both increases and decreases in a parent’s controlling ownership interest. The Company has adopted SFAS 160 beginning in fiscal 2009, which required the Company to reclassify noncontrolling interest as a component of equity.

 

In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) SFAS No. 141 (revised 2007), entitled “ Business Combinations ”. SFAS 141R will change how business acquisitions are accounted for and will impact financial statements both on the acquisition date and in subsequent periods. SFAS 141R is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company adopted SFAS 141R beginning in 2009 and does not expect the change to have a material effect on its financial position or results of operations.

 

In December 2007, the Emerging Issues Task Force (“EITF”) issued EITF 07-1 entitled, “ Accounting for Collaborative Arrangements .” EITF 07-1 defines collaboration arrangements and establishes reporting requirements for transactions between participants in a collaborative arrangement and between participants in the arrangement and third parties. EITF 07-1 is effective for fiscal years beginning after December 15, 2008. The Company adopted EITF 07-1 beginning in 2009 and does not expect the change to have a material effect on its financial position or results of operations .

 

In June 2007, the EITF issued EITF 07-3 entitled “ Accounting for Nonrefundable Advance Payments for Goods or Services Received for Future Research and Development Activities ”. This Issue provides guidance on whether nonrefundable advance payments for goods or services that will be used or rendered for research

and development activities should be expensed when the advance payment is made or when the research and development activity has been performed. EITF 07-3 was effective for all of 2008.

 

In February 2007, the FASB issued SFAS No. 159, entitled “ Fair Value Option for Financial Assets and Financial Liabilities ” (SFAS 159). This Statement is an amendment to SFAS No. 115, Accounting for certain investment in debt and equity securities. SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS 159 was effective for all of 2008.

RESULTS OF OPERATIONS

 

Years ended December 31, 2008 and 2007

 

Revenues

 

We recognized approximately $12,000 in licensing revenue in each of the years ended December 31, 2008 and 2007, in connection with the license of our nutritional and diagnostic technology. Future revenues, if any, from this license agreement are expected to continue to be minimal.

 

Our future revenues will depend upon our ability to establish collaborations with respect to, and generate revenues from products currently under development by us. We expect that we will not generate meaningful revenue in fiscal 2009 unless and until we enter into new collaborations providing for funding through the payment of licensing fees and up-front payments.

 

 

We expect that as we continue to develop the two lead potential product candidates, ZYBRESTAT and OXi4503, the percentage of research and development expenses to total operating expenses will continue to increase.

 

Research and development expenses

 

The table below summarizes the most significant components of our research and development expenses for the periods indicated, in thousands and as a percentage of total research and development expenses and provides the changes in these components and their percentages:

 

External services expenses are comprised of costs incurred for consultants, contractors and outside service providers that assist in the management and support of our development programs. The increase in these costs in fiscal 2008 over fiscal 2007 is primarily attributable to an increase in expenditures on our ZYBRESTAT oncology programs, namely, our Phase II/III clinical trial for the treatment of anaplastic thyroid cancer, our Phase II trial in combination with bevacizumab ^® for the treatment of non small cell lung cancer, and our Phase II trial for the treatment of platinum resistant ovarian cancer, totaling approximately $4,704,000. These increases were offset by decreases in expenditures on both our Phase I trial of OXi4503 in solid tumors and our Phase I trial of ZYBRESTAT in combination with bevacizumab in solid tumors, totaling approximately $1,018,000. In addition, we experienced an increase in our pre-clinical study expenses of approximately $871,000, which was offset by a decrease in drug manufacturing expenses of approximately $753,000.

 

The increase in employee compensation and related expenses is attributable to an increase in the average number of employees in fiscal 2008 over fiscal 2007 of approximately 30%.

 

We expect that with the continued development of our two lead product candidates, ZYBRESTAT and OXi4503 in oncology and ophthalmology, our research and development expenses will continue to increase. As a result, we expect that the percentage of external services expenses to total research and development expenses will continue to increase as well.

 

General and administrative expenses

 

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

 

 

The decrease in employee compensation and related expenses in fiscal 2008 from fiscal 2007 of is due to payments and awards made in 2007 in accordance with executive employment agreements and the addition of a senior level executive in 2007 that were not repeated in fiscal 2008. The decrease in stock-based compensation in fiscal 2008 from fiscal 2007 is attributable to the departure of our former Chief Executive Officer in 2008 and the full vesting in fiscal 2007 of a number of options granted to our directors and officers that was not repeated in fiscal 2008. As grants of equity awards have not historically been made on a consistent basis year to year, the expense recognized for stock-based compensation is highly variable.

 

The increase in consulting and professional services expenses in fiscal 2008 over fiscal 2007 is primarily attributable to increases in legal and contracted services and advisory costs, totaling approximately $541,000 in connection with the establishment of our committed equity financing facility and the initiation of Symphony ViDA Inc. The increase in facilities related expense is due to the expansion of office space in the San Francisco area in fiscal 2008 over 2007 and an increase in the average number of employees to support the continued development of our product candidates. The decrease in other expenses in fiscal 2008 from fiscal 2007 of $136,000 is consistent with the overall reduction in spending in the combined general and administrative expense categories.

We expect that we will continue to incur general and administrative expenses at an appropriate level to support the ongoing development of our potential product candidates and to meet the requirements of being a public company.

 

Other Income and Expenses

 

In fiscal 2008, we recorded a gain of $3,335,000 relating to the change in fair value of outstanding warrants, which are accounted for as liabilities. The majority of this gain, or $3,312,000, is due to the Direct Investment Warrant issued to Symphony Capital in October 2008 and exercised by them in December 2008 following the approval by our stockholders of the issuance of our common stock underlying the warrant at a special meeting of stockholders on December 9, 2008. The gain represents the change in value between the Direct Investment Warrant issue date and December 30, 2008, the date that the Direct Investment Warrant was exercised. The remainder of the gain reflects the change during the fourth quarter in value of the CEFF Warrant issued to Kingsbridge Capital.

 

Investment income decreased by approximately $1,337,000, or 68%, in fiscal 2008, compared to fiscal 2007, primarily due to a combination of lower average cash, cash equivalents and available-for-sale marketable securities balances during 2008 and by lower average interest rates and returns on investments.

 

Tax Matters

 

At December 31, 2008, the Company had net operating loss carry-forwards of approximately $155,011,000 for U.S. income tax purposes, which will be expiring for U.S. purposes through 2028. Due to the degree of uncertainty related to the ultimate use of these loss carry-forwards, we have fully reserved this future benefit. Additionally, the future utilization of the U.S. net operating loss carry-forwards is subject to limitations under the change in stock ownership rules of the Internal Revenue Service. The valuation allowance increased by approximately $9,612,000 and approximately $8,485,000 for the years ended December 31, 2008 and 2007, respectively, due primarily to the increase in net operating loss carry-forwards.

 

Years ended December 31, 2007 and 2006

 

Revenues

 

During the year ended December 31, 2007, we recognized approximately $12,000 in licensing revenue in connection with the license of our nutritional and diagnostic technology. We did not recognize any licensing revenue during the year ended December 31, 2006. Future revenues, if any, from this license agreement are expected to be minimal.

 

Research and development expenses

 

The table below summarizes the most significant components of our research and development expenses for the periods indicated, in thousands and as a percentage of total research and development expenses and provides the changes in these components and their percentages:

 

 

External services expenses are comprised of costs incurred for consultants, contractors and outside service providers that assist in the management and support of our development programs. The increase in these costs in fiscal 2007 over fiscal 2006 is attributable to the further development of our two primary potential product candidates, ZYBRESTAT in both oncology and ophthalmology and OXi4503 in oncology. In particular, in June 2007, we initiated our Phase II/III trial of ZYBRESTAT in the treatment of anaplastic thyroid cancer, a multi-center, 180 patient clinical trial. This is the largest clinical trial we have undertaken to date. In addition, we initiated a clinical trial of ZYBRESTAT in combination with bevacizumab (Avastin ^® ) in late November 2006, and such trial was ongoing for all of fiscal 2007.

 

Decreases in both employee compensation and related expenses as well as stock-based compensation expense is attributable to a decrease in the average number of employees in fiscal 2007 over fiscal 2006.

 

General and administrative expenses

 

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

 

 

Approximately 50% of the overall increase in general and administrative expenses in fiscal 2007 over fiscal 2006 is attributable to employee compensation and related expenses and stock-based compensation. Although the average number of employees decreased from 2006 to 2007, the increase in such expense is due to payments and awards made in 2007 in accordance with executive employment agreements and the addition of a senior level executive in 2007, as we continue to build and develop our administrative capabilities to appropriately support our development programs. The increase in consulting and professional services expense is due to additional advisory services as we support the continued advancement of our development programs.

The increase in facilities related expense is due to the establishment of office space in the San Francisco area in 2007.

 

Other Income and Expenses

 

Investment income decreased by approximately $547,000, or 22%, in fiscal 2007, compared to fiscal 2006, primarily due to lower average cash, cash equivalents and available-for-sale marketable securities balances during the respective periods offset in part by higher average interest rates and returns on investments.

LIQUIDITY AND CAPITAL RESOURCES

 

To date, we have financed our operations principally through net proceeds received from private and public equity financing and in fiscal 2008, from research and development services provided to Symphony ViDA Inc. We have experienced net losses and negative cash flow from operations each year since our inception, except in fiscal 2000. As of December 31, 2008, we had an accumulated deficit of approximately $159,202,000. We expect to incur increased expenses, resulting in losses, over at least the next several years due to, among other factors, our continuing and planned clinical trials and anticipated research and development activities. We had cash, cash equivalents and available-for-sale securities of approximately $18,918,000 at December 31, 2008. In addition, investments held by Symphony ViDA Inc. were $14,663,000 as of December 31, 2008. These investments held by Symphony ViDA, Inc. are dedicated to fund programs licensed by us to Symphony ViDA, Inc. and are not available for general corporate purposes.

 

The following table summarizes our cash flow activities for the periods indicated, in thousands:

 

 

Included in non-cash adjustments to net loss are a gain on change in valuation of warrants of $3,335,000, the loss attributed to noncontrolling interests of approximately $520,000 and changes to the rent loss accrual of approximately $163,000 which were offset in part by stock based compensation of approximately $999,000,

the issuance of stock in lieu of bonus of $87,000 and depreciation an amortization expense of $231,000. The changes in operating assets reflect an increase in accounts payable, accrued expenses and other payables of approximately $782,000 offset by an increase in prepaid expenses and other current assets of approximately $78,000.

 

The proceeds from purchase of noncontrolling interest by preferred stockholders of Symphony ViDA, Inc., net of fees, reflects the investment by Symphony Capital LLC of $15,000,000 into Symphony ViDA and offset by a structuring fee of $1,750,000 and legal expenses of approximately $347,000 of which 50% is allocated to the noncontrolling interest and 50% is allocated to the Symphony direct investment. The proceeds from the issuance of common stock and warrants, net of fees, and the subsequent exercise of those warrants for the Symphony direct investment and proceeds from common stock issuance for the Kingsbridge CEFF net to $14,691,000.

 

On October 1, 2008, we announced a strategic collaboration with Symphony Capital Partners, L.P. (Symphony), a private-equity firm, under which Symphony agreed to provide up to $40,000,000 in funding to support the advancement of ZYBRESTAT for oncology, ZYBRESTAT for ophthalmology and OXi4503. Under this collaboration, we entered into a series of related agreements with Symphony Capital LLC, or Symphony, Symphony ViDA, Inc., or ViDA, Symphony ViDA Holdings LLC, or Holdings, and related entities (for a list of the agreements see Notes to Financial Statements No. 1, Description of Business and Significant Accounting Policies under Consolidation of Variable Interest Entity.)

 

Pursuant to these agreements, Holdings has formed and capitalized ViDA, a Delaware corporation, in order (a) to hold certain intellectual property related to two of our product candidates, ZYBRESTAT for use in ophthalmologic indications and OXi4503, referred to as the “Programs,” which were exclusively licensed to ViDA under the Novated and Restated Technology License Agreement and (b) to fund commitments of up to $25,000,000. The funding will support pre-clinical and clinical development conducted by us, on behalf of ViDA, for ZYBRESTAT for ophthalmology and OXi4503. Under the provisions in the Additional Funding Agreement, we may be required to commit up to $15,000,000 to ViDA. Our requirement for additional funding will be determined by a number of factors, including among others, if at all, the determination of the need for more funding and the written recommendation of the Joint Development Committee (JDC), the approval of the Symphony ViDA Board, the probability and amount of the additional funding provided by Holdings, if any, the probability that we may provide optional funding (“Optional Company Funding”), and the timing of meeting the potential obligations.

 

The Purchase Option Agreement provides for the exclusive right, but not the obligation, for us to repurchase both Programs by acquiring 100% of the equity of ViDA at any time between October 2, 2009 and March 31, 2012 for an amount equal to two times the amount of capital actually invested by Holdings in ViDA, less certain amounts. The purchase price is payable in cash or a combination of cash and shares of our common stock (up to 20% of the purchase price or 10% of the total number of shares of our common stock outstanding at such time, whichever is less), in our sole discretion. If we do not exercise our exclusive right with respect to the purchase of ZYBRESTAT for ophthalmology and OXi4503 licensed under the agreement with ViDA, rights to ZYBRESTAT for ophthalmology and OXi4503 at the end of the development period will remain with ViDA.

 

We have issued to Holdings, pursuant to the Stock and Warrant Purchase Agreement an aggregate of 13,513,514 shares of our common stock and warrants at a price of $1.11 per share, the closing price of our common stock on The NASDAQ Global Market on September 30, 2008, the day before the consummation of the Symphony transaction. In addition, pursuant to the Purchase Option Agreement, we issued to Holdings an aggregate of 3,603,604 shares of our common stock with a fair value of $4,000,000 as consideration for the Purchase Option. We may issue additional shares of our common stock and warrants in the event of specified events under the Additional Funding Agreement (maximum value of stock or warrants equal to one million dollars in scenario that Symphony contributes entire $10 million Additional Funding Amount to ViDA), the Novated and Restated Technology License Agreement (in certain scenarios, a maximum of four million shares to be purchased by Symphony at a price of $1.22 per share) and the Purchase Option Agreement (as consideration for the assets of ViDA, we may issue to Symphony stock and warrants equal to a maximum of

20% of the ViDA purchase price, subject to the limitation that such stock and warrants not exceed 10% of the total number of shares of our common stock outstanding shares at such time.) We have agreed to provide certain registration rights under the Securities Act of 1933, as amended (the “Securities Act”) with respect to the shares issued and to be issued to Holdings under these agreements.

 

In February 2008, we entered into the CEFF with Kingsbridge, pursuant to which Kingsbridge committed to purchase, subject to certain conditions, up to 5,708,035 shares of our common stock or up to an aggregate of $40,000,000 during the next three years. Under the CEFF, we are able to draw down in tranches of up to a maximum of 3.5% of our closing market value at the time of the draw down or the alternative draw down amount calculated pursuant to the Common Stock Purchase Agreement, whichever is less. The purchase price of these shares is discounted between 5 to 12 percent from the volume weighted average price of our common stock for each of the eight trading days following the election to sell shares. Kingsbridge is not obligated to purchase shares at prices below $1.25 per share or at a price below 85% of the closing share price of our stock in the trading day immediately preceding the commencement of a draw down, whichever is higher. In connection with the CEFF, we issued a warrant to Kingsbridge to purchase 250,000 shares of our common stock at a price of $2.74 per share exercisable beginning six months after February 19, 2008 and for a period of five years thereafter. We have filed a registration statement on Form S-1 to register the resale by Kingsbridge of the shares issuable to Kingsbridge under the CEFF, which was declared effective by the SEC on May 15, 2008. In June 2008, we completed our first drawdown under the CEFF, netting approximately $900,000. In the near future additional draw downs are not likely due to the current stock price.

 

We anticipate that our existing cash, cash equivalents and available-for-sale marketable securities of $18,918,000 along with investment income earned thereon, which is dedicated to provide funding for our ZYBRESTAT oncology program, will enable us to maintain our currently planned operations for this program into the fourth quarter of 2009. We anticipate that the investments held by Symphony ViDA of $14,663,000 along with investment income earned thereon and commitments of additional funding from Symphony Capital, which is dedicated to provide funding for our ZYBRESTAT ophthalmology and OXi4503 programs, will enable us to maintain our currently planned operations for those programs at least into the first quarter of fiscal 2010.

 

Our cash utilization amount is highly dependent on the progress of our potential-product development programs, particularly, the results of our pre-clinical projects, the cost timing and outcomes of regulatory approvals for our product candidates, the terms and conditions of our contracts with service providers for these programs, the rate of recruitment of patients in our human clinical trials, much of which is not within our control as well as the timing of hiring development staff to support our product development plans. At the current time, we are uncertain whether we will be able to access our CEFF during fiscal 2009 to augment our existing capital resources as the current market price of our common stock is below the minimum required by our agreement with Kingsbridge. We do intend to aggressively pursue other forms of capital infusion including strategic alliances with organizations that have capabilities and/or products that are complementary to our own, in order to continue the development of our potential product candidates.

 

Our cash requirements may vary materially from those now planned for or anticipated by management due to numerous risks and uncertainties. These risks and uncertainties include, but are not limited to: the progress of and results of our pre-clinical testing and clinical trials of our VDA drug candidates under development, including ZYBRESTAT, our lead drug candidate, and OXi4503; the progress of our research and development programs; the time and costs expended and required to obtain any necessary or desired regulatory approvals; the resources, if any, that we devote to developing manufacturing methods and advanced technologies; our ability to enter into licensing arrangements, including any unanticipated licensing arrangements that may be necessary to enable us to continue our development and clinical trial programs; the costs and expenses of filing, prosecuting and, if necessary, enforcing our patent claims, or defending ourselves against possible claims of infringement by us of third party patent or other technology rights; the costs of commercialization activities and arrangements, if any, undertaken by us; and, if and when approved, the demand for our products, which demand is dependent in turn on circumstances and uncertainties that cannot be fully known, understood or quantified unless and until the time of approval, for example the range of indications for which any product is granted approval.

We will need to raise additional funds to support our operations to remain a going concern past October 2009, and such funding may not be available to us on acceptable terms, or at all. If we are unable to raise additional funds when needed, we may not be able to continue development of our product candidates or we could be required to delay, scale back or eliminate some or all of our development programs and other operations. We may seek to raise additional funds through public or private financing, strategic partnerships or other arrangements. Any additional equity financing may be dilutive to our current stockholders and debt financing, if available, may involve restrictive covenants. If we raise funds through collaborative or licensing arrangements, we may be required to relinquish, on terms that are not favorable to us, rights to some of our technologies or product candidates that we would otherwise seek to develop or commercialize ourselves. Our failure to raise capital when needed may harm our business, financial condition and results of operations.

 

 

Payments under clinical development and related commitments are based on the completion of activities as specified in the contract. The amounts in the table above assume the successful completion, by the third-party contractor, of all of the activities contemplated in the agreements. In addition, not included in operating leases above, is sublease income which totals approximately $256,000 for fiscal 2008.

 

Our primary drug development programs are based on a series of natural products called Combretastatins. In August 1999, we entered into an exclusive license for the commercial development, use and sale of products or services covered by certain patent rights owned by Arizona State University. This agreement was subsequently amended in June 2002. From the inception of the agreement through December 31, 2008, we have paid a total of $2,500,000 in connection with this license. The agreement provides for additional payments in connection with the license arrangement upon the initiation of certain clinical trials or the completion of certain regulatory approvals, which payments could be accelerated upon the achievement of certain financial milestones, as defined in the agreement. The license agreement also provides for additional payments upon our election to develop certain additional compounds, as defined in the agreement. Future milestone payments under this agreement could total $200,000. We are also required to pay royalties on future net sales of products associated with these patent rights.

 

On October 1, 2008, we announced a strategic collaboration with Symphony Capital Partners, L.P. (Symphony), a private-equity firm, under which Symphony agreed to provide up to $40,000,000 in funding to support the advancement of ZYBRESTAT for oncology, ZYBRESTAT for ophthalmology and OXi4503. Under this collaboration, we entered into a series of related agreements with Symphony Capital LLC, Symphony ViDA, Inc., or ViDA, Symphony ViDA Holdings LLC, or Holdings, and related entities.

 

Pursuant to these agreements, Holdings has formed and capitalized ViDA, a Delaware corporation, in order (a) to hold certain intellectual property related to two of our product candidates, ZYBRESTAT for use in ophthalmologic indications and OXi4503, referred to as the “Programs,” which were exclusively licensed to ViDA under the Novated and Restated Technology License Agreement and (b) to fund commitments of up to $25,000,000. The funding will support pre-clinical and clinical development by us, on behalf of ViDA, for ZYBRESTAT for ophthalmology and OXi4503. Under certain circumstances, we may be required to commit up to $15,000,000 to ViDA. Our requirement for additional funding will be determined by a number of factors, including among others, if at all, the determination of the need for more funding and the written recommendation of the Joint Development Committee (JDC), the approval of the Symphony ViDA Board, the probability

and amount of the additional funding provided by Holdings, if any, the probability that we may provide optional funding (“Optional Company Funding”), and the timing of meeting the potential obligations.

 

 

 

 

Management Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2008 based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2008.

 

Important Considerations

 

The effectiveness of our disclosure controls and procedures and our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error, and the risk of fraud. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and the risk that the degree of compliance with policies or procedures may deteriorate over time. Because of these limitations, there can be no assurance that any system of disclosure controls and procedures or internal control over financial reporting will be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management. Because as of June 30, 2008 the Company’s market capitalization was below $50,000,000, Ernst & Young LLP was not required to issue an opinion on our internal control over financial reporting and, therefore, did not perform for the fiscal year ended December 31, 2008 an audit of our internal control over financial reporting pursuant to Section 404 of the Sarbanes Oxley Act of 2002.

 

 

PART III

 

 

 

 

PART IV

 

 

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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.

 

OXiGENE, Inc.

 

John A. Kollins

President and Chief Executive Officer

 

Date: March 30 , 2009

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Form 10-K Item 15(a)(1)

 

OXiGENE, Inc.

 

Index to Consolidated Financial Statements

 

The following consolidated financial statements of OXiGENE, Inc. are included in Item 8:

 

 

The Board of Directors and Shareholders

OXiGENE, Inc.

 

We have audited the accompanying consolidated balance sheets of OXiGENE, Inc. as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of OXiGENE, Inc. at December 31, 2008 and 2007, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.

 

The accompanying consolidated financial statements have been prepared assuming that OXiGENE, Inc. will continue as a going concern. As more fully described in Note 1, the Company has incurred recurring operating losses and will be required to raise additional capital, alternative means of financial support, or both, prior to January 1, 2010 in order to sustain operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters also are described in Note 1. The 2008 consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

 

 

Boston, Massachusetts

March 26, 2009

OXiGENE, Inc.

Consolidated Balance Sheets
All Amounts in thousands
except per share amounts