UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

 

Form 10-K

 

 

Commission file number:  0-21990

          

 

 

 

 

OXiGENE, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

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

 

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

 

 

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):

 

(Do not check if a smaller reporting company)

 

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, 2007 was $104,683,000.

 

As of February 21, 2008, the aggregate number of outstanding shares of common stock of the registrant was 28,541,607.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Certain portions of the registrant’s definitive Proxy Statement for the 2008 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

 

 

 

OXiGENE, Inc. (“OXiGENE” or the “Company”) is a clinical-stage, biopharmaceutical company developing novel therapeutics to treat cancer and eye diseases. The Company’s primary focus is the development and commercialization of product candidates referred to as vascular disrupting agents (VDAs) that selectively disrupt abnormal blood vessels associated with solid tumor progression and visual impairment in a number of ocular diseases, which are characterized by abnormal blood vessel growth. Because its VDA product candidates act via a validated therapeutic mechanism, inhibition of blood flow to tumors and neovascular lesions within the eye, the Company believes the risk associated with its drug development programs is lower than that of other agents that act via unvalidated therapeutic mechanisms.

 

OXiGENE’s most advanced therapeutic product candidate, ZYBRESTAT^tm (generic name fosbretabulin, previously known as combretastatin A4 phosphate or CA4P), is currently being evaluated in a Phase II/III pivotal registration study as a potential treatment for anaplastic thyroid cancer, a highly aggressive and lethal malignancy for which there are currently no approved therapeutics and extremely limited treatment options. In addition, ZYBRESTAT is being evaluated in Phase Ib and II clinical trials, in combination with established cancer treatment modalities, as a potential treatment for other solid tumors, including non-small cell lung cancer (NSCLC), platinum resistant ovarian cancer, and head-and-neck cancer. Based upon preclinical results first published by its collaborators in the November 2007 online issue of the journal Blood, OXiGENE believes that ZYBRESTAT and its other VDA product candidates may also have utility in the treatment of hematological malignancies or “liquid tumors.”

 

In addition to developing ZYBRESTAT as an intravenously administered therapy for cancer indications, OXiGENE is developing a topical formulation of ZYBRESTAT for ophthalmological diseases and conditions, such as age-related macular degeneration (AMD) that are characterized by abnormal blood vessel growth within the eye that results in loss of vision. The Company believes that a safe, effective, convenient topically-administered anti-vascular therapeutic would have advantages over currently-approved anti-vascular, ophthalmological therapeutics, which must be injected directly into patients’ eyes on a frequent basis. In addition to having potential utility for treating ocular diseases and conditions such as AMD that affect tissues such as the choroid 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 that affect tissues in the front of the eye, such as the cornea and iris, and are characterized by abnormal growth of blood vessels, or neovascularization. The Company currently anticipates initiating human clinical studies with a topical formulation of ZYBRESTAT in an ophthalmological indication in 2008.

 

OXiGENE is currently evaluating a second-generation VDA product candidate, OXi4503, in a Phase I clinical trial in patients with advanced solid tumors. The Company refers to OXi4503 as an ortho-quinone prodrug. In preclinical studies, OXi4503 has shown potent anti-tumor activity, 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 ability to exert (i) potent vascular disrupting effects on tumor vasculature; and (ii) direct cytotoxic effects on tumor cells in a tumor-preferential fashion.

 

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 that it believes will be complementary with its later-stage VDA product candidates.

 

VDA Background

 

OXiGENE’s VDA drug development programs are based on a series of natural products called Combretastatins, which were originally isolated from the African bush willow tree (Combretum caffrum) by researchers at Arizona State University (ASU). ASU has granted the Company an exclusive, worldwide, royalty-bearing license with respect to the commercial rights to particular Combretastatins. Through in vitro

and in vivo testing, it has been established that certain Combretastatins exert anti-tumor effects in both solid and liquid tumors by selectively (i) disabling newly-formed abnormal blood vessels that provide oxygen to and carry metabolic waste away from solid tumors; and (ii) disrupting key cell-to-cell functional and adhesion proteins that tumor blood vessels and leukemia cells utilize for stabilization. Via these mechanisms, OXiGENE’s VDA therapeutic candidates can exert dramatic effects on the shape and structural integrity of newly formed vascular endothelial cells. Vascular endothelial cells are the flat and elongated cells that form the walls of blood vessels; as these endothelial cells grow and divide, new blood vessels are formed.

 

In vitro studies have demonstrated that ZYBRESTAT (fosbretabulin) acts in a reversible fashion on a protein called tubulin inside the newly-formed and growing endothelial cells. 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.

 

Normal healthy tissues in the body have few actively growing endothelial cells. These normal, blood vessel endothelial cells have matured, and have much greater supporting structures such as pericytes and smooth muscle cells. They do not depend solely on tubulin for maintenance of their cell shape, and thus are much less susceptible to the effects of ZYBRESTAT. Because of this, ZYBRESTAT appears to have very high selectivity for abnormal blood vessels.

 

Preclinical 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. These two complementary mechanisms can block the flow of blood to a tumor and deprive it of oxygen and nutrients essential to its survival.

 

In addition, preclinical research first published in the November 2007 online issue of the journal Blood, indicate that ZYBRESTAT has potent effects against acute leukemia in both in vitro and in vivo models. The Company believes these data suggest that its VDA product candidates may also have clinical utility in the treatment of liquid tumors, and, in collaboration with its advisors, the Company is considering potential avenues for developing its VDA product candidates as treatments for liquid tumors.

 

VDAs are distinguishable from anti-angiogenesis agents, which attempt to prevent the formation of new tumor blood vessels, in that VDAs directly target the blood vessels that have already formed within tumors. OXiGENE believes that anti-angiogenesic drug products may prevent the continued growth of tumors but may not directly result in the death of existing cancer cells. In contrast, OXiGENE’s preclinical studies have shown that VDAs rapidly reduce blood flow within the tumor, thereby causing rapid and extensive tumor cell death. Moreover, because VDAs affect the central regions of the tumor, they may have the potential to enhance the effectiveness of currently available cancer therapies. In preclinical studies and an ongoing Phase Ib clinical study evaluating ZYBRESTAT in combination with the approved anti-angiogenic drug, bevacizumab, OXiGENE and its collaborators have observed that the combination of a VDA and an anti-angiogenic agent demonstrates enhanced activity against tumors.

 

OXiGENE has developed two distinct classes of therapeutic candidates that are based on Combretastatins: (i) VDAs, including ZYBRESTAT, which the Company is developing for both oncology and ophthalmology indications; and (ii) a sub-class of VDAs that it refers to as ortho-quinone prodrugs, which includes OXi4503, that the Company is developing for oncology indications.

Our Development Programs and Product Candidates

 

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

 

ZYBRESTAT for Oncology — Intravenous

 

 

ZYBRESTAT for Ophthalmology — Topical

 

 

OXi4503 for Oncology — Intravenous

 

 

ZYBRESTAT Oncology

 

ZYBRESTAT (fosbretabulin) is OXiGENE’s lead VDA product candidate. In the field of oncology, five clinical trials evaluating ZYBRESTAT for the treatment of advanced solid tumor cancers have been completed and more than 300 patients have been dosed 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 an advantage over currently-marketed anti-angiogenic agents.

 

ZYBRESTAT^tm, administered intravenously, is currently being evaluated in a 180-patient, controlled, randomized pivotal registration study, 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). Anaplastic thyroid cancer, which afflicts an estimated 1,000 to 4,000 people per year in the United States and Europe, is a highly aggressive and lethal malignancy for which therapeutic options are limited and there are no approved therapies. 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 mid-2009, upon occurrence of approximately half 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 positive effect on overall survival.

The Company believes that preclinical 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, with one pathologically-confirmed ATC patient achieving a durable complete response (i.e., cure) after treatment with ZYBRESTAT monotherapy. Individual subjects with metastatic papillary or metastatic medullary thyroid cancer have also responded or achieved disease stabilization when treated with ZYBRESTAT. In a Phase II trial with ZYBRESTAT monotherapy in 26 patients with metastatic ATC, more than 1/3 achieved stable disease, with a median survival which compared favorably with historical median survival data for this disease from the published scientific literature.

 

In June 2003, FDA 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.

 

In July 2003, ZYBRESTAT was 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.

 

In addition to the ongoing pivotal registration study in anaplastic thyroid cancer, ZYBRESTAT is being evaluated in multiple ongoing oncology clinical trials in combination with other cancer treatment modalities, including chemotherapy, radiation therapy, and targeted therapies (i.e., bevacizumab, an approved anti-angiogenic therapeutic antibody that inhibits VEGF, a key blood-vessel growth factor.) Based on preclinical and clinical trial results to date, the Company believes that combinations of ZYBRESTAT, chemotherapy, radiation therapy, 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:

 

the results from this clinical study, in combination with results reported in November 2005 from a Phase Ib trial of ZYBRESTAT in combination with chemotherapy in ovarian cancer patients (both platinum-sensitive and platinum-resistant disease) provide evidence of an efficacy signal in ovarian cancer.

 

 

ZYBRESTAT Oncology Business Strategy

 

OXiGENE believes that the ATC indication potentially offers a route to ZYBRESTAT (fosbretabulin) approval and commercialization in a targeted therapeutic area that is characterized by (i) a relatively small universe 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.

 

ZYBRESTAT Topical and Its Application in Ophthalmological Indications

 

Based on results from preclinical and clinical trials, the Company believes that a topically-applied formulation of ZYBRESTAT (e.g., an eyedrop) 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 which 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 such as AMD 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 that affect tissues in the front of the eye, such as the cornea and iris, and are characterized by abnormal neovascularization.

 

Although several anti-angiogenic therapeutics have been approved and are marketed for ophthalmological indications in which patients are experiencing active disease, the requirement that they be injected directly into the eye on a repeated basis is a significant limitation that may result in serious side effects. As a result, therapies injected into the eye are typically used only in the subset of patients with active and severe disease; the much larger proportion of patients with nascent and/or less severe disease have limited therapeutic options. 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. Injectable anti-angiogenic therapies are not an appropriate treatment option for many of these patients.

 

In February 2007, OXiGENE announced that all 23 myopic macular degeneration patients treated with intravenous ZYBRESTAT in a Phase II clinical trial successfully achieved the primary endpoint of the trial, vision stabilization at three months. Based on these results, the Company believes that a topical formulation of ZYBRESTAT is likely to have clinical activity in ophthalmological diseases characterized by abnormal

neovascularization, provided the topical formulation can deliver adequate amounts of drug to the relevant target tissues in the eye, (e.g., the retina and choroid in the case of AMD.) In December 2007, OXiGENE announced that topical formulations of ZYBRESTAT administered to rabbits resulted in achievement of drug concentrations in target tissues (i.e., the retina and choroid) that the Company believes are adequate for therapeutic activity. The Company is undertaking studies to confirm these results in primate models. Provided that primate topical administration studies are successful, the Company anticipates submitting an investigational new drug application (IND) or IND equivalent outside the United States by the middle of 2008 that will enable initiation of human clinical trials with a topical formulation of ZYBRESTAT.

 

The Company believes that a topical formulation of ZYBRESTAT could address unmet medical needs in a number of ophthalmological diseases and conditions that are characterized by abnormal vascularization that results in vision loss, including age-related macular degeneration, myopic macular degeneration, diabetic retinopathy and neovascular glaucoma. Information as to the prevalence of such diseases and conditions, as of 2005, is set forth below:

 

 

Ortho-Quinone Prodrugs, or OQPs, i.e. VDAs with tumor-preferential cytotoxicity

 

The Company is pursuing development of its lead OQP product candidate, OXi4503, as a treatment for cancer.

 

OXi4503 and Its Application in Oncology

 

Preclinical research with OXi4503, OXiGENE’s first OQP candidate, suggests that it not only acts as a VDA to shut down tumor blood flow, but can also be metabolized in a tumor-preferential fashion into a compound which could assist with killing the remaining tumor cells at the periphery of the tumor by direct cytotoxic activity against tumor cells. In preclinical studies, OXi4503 has shown potent single-agent anti-tumor activity, and, when administered in combination with other cancer treatment modalities — including chemotherapy, radiation therapy, anti-angiogenic therapy, tyrosine kinase inhibitors, and stem-cell mobilizing therapy — demonstrates enhanced anti-tumor activity. The Company believes that OXi4503 is differentiated from other VDAs by its ability to exert (i) potent vascular disrupting effects on tumor vasculature; and (ii) direct cytotoxic effects on tumor cells in a tumor-preferential fashion.

 

In December 2004, the United Kingdom regulatory authorities accepted an application from our collaborators, Cancer Research UK, to initiate a dose-escalating Phase I clinical trial of OXi4503 in patients with advanced cancer, and this trial is currently ongoing. In October 2007, our collaborators from Cancer Research UK presented interim data from this trial indicating that OXi4503 was observed to be well tolerated with no dose-limiting toxicity seen to date at dosages corresponding to maximum-tolerated dosages in preclinical studies. 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 4 of 20 subjects. The Company anticipates receiving data from this clinical trial in the first half of 2008. Following determination of the safety profile and maximum tolerated dose of OXi4503 in the ongoing Phase I trial, the Company plans to undertake further development of the product candidate, potentially in collaboration with a partner, with future study designs and direction based on review of the Phase I data and results obtained from preclinical studies.

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 at 1001 Bay Hill Drive, San Bruno, California and in the United Kingdom at Magdalen Centre, Robert Robinson Avenue, The Oxford Science Park, Oxford, OX4 4GA. 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).

 

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 on a continually developing vascular supply for their growth and survival. This naïve vasculature is the focal point of OXiGENE’s research and development program. The Company’s clinical candidates appear to disrupt the function of newly formed abnormal blood vessels that are associated with solid tumors and vision impairment in a variety of eye diseases and conditions characterized by abnormal neovascularization that results in loss of vision. OXiGENE is researching and developing two separate, but related, classes of compounds. The first class of compounds, termed Vascular Disrupting Agents, or VDAs, departs significantly from current approaches to treating cancer. Despite advances in surgery, radiation and chemotherapy, serious problems with these conventional treatments persist: many solid tumors remain incurable, especially when the tumor has metastasized or is a large mass at the time of diagnosis; surgery may not be capable of treating certain tumors because of their location; and chemotherapy and radiation may not be effective in attacking the tissue core of the tumor. In addition, chemotherapy and radiation treatments may damage healthy cells along with cancerous cells, resulting in serious side effects for patients and, in many instances, can also induce drug resistance in the tumor. Therefore, a need exists for novel and highly targeted approaches to fighting cancer.

 

Anti-tumor VDAs are the focus of much scientific research. VDAs attack a tumor’s life support system, the network of existing and emerging blood vessels, and selectively disrupt the existing blood vessel structures, particularly those within the tumor, creating a rapid and irreversible shutdown of these blood vessels. Preclinical data in sarcoma tumors indicate that in animals with tumor xenografts treated with ZYBRESTAT, those animals that achieve the greatest tumor blood-flow inhibition have the greatest rates of tumor cell deaths. OXiGENE believes that shutting off a tumor’s blood supply is an efficient therapeutic strategy and that there are many advantages to using VDAs.

 

First, many thousands of tumor cells depend on each blood vessel, and thus, damage to a relatively small number of endothelial cells, which line the blood vessels, could reduce blood flow and trigger a cascade of tumor cell death. Second, the endothelial cells that line the blood vessels and are the primary target of VDAs reside adjacent to the blood stream, and thus, delivery problems that are common with conventional chemotherapy may be overcome by using VDAs. Third, since endothelial cells are not transformed by VDAs and because VDAs appear to disengage VE-cadherin, a protein that holds adjacent endothelial cells together, treatment-resistant mutations are unlikely to emerge. Finally, recent advances in technologies that can accurately measure blood flow in a tumor have allowed OXiGENE to establish early in the clinical trial process whether a VDA has biological activity.

 

Based on pre-clinical studies and results from early stage clinical trials that show significant anti-tumor activity with VDA therapy, the Company believes that VDAs will be complementary to existing and emerging cancer treatments. As a result, in 2005 OXiGENE broadened its clinical trial pipeline and is currently evaluating ZYBRESTAT in combination with prevalent anti-cancer therapies, such as radiation and chemotherapy, as well as newer, highly-targeted therapies, such as anti-VEGF therapy, in a variety of key indications. These clinical trials are currently in various stages, including Phase Ib, Phase II and Phase III. OXiGENE also continues to conduct preclinical research studies with VDAs. In July 2007, the Company initiated a 180-

patient, controlled, randomized pivotal registration study, pursuant to a Special Protocol Assessment (SPA) agreement with the FDA, as a potential treatment for anaplastic thyroid cancer (ATC).

 

OXiGENE’s second clinical compound, OXi4503, is a lead compound in a distinct class of clinical candidates called ortho-quinone prodrugs, or OQPs. OQPs exhibit the properties of vascular disrupting agents, but may also be metabolized into a compound that could help to kill the surviving tumor cells at the periphery of the tumor. OXi4503 is currently being evaluated in a Phase I clinical trial for the treatment of solid tumors.

 

Combretastatin.  Combretastatin compounds are naturally occurring small molecules found in the bark of the African bush willow tree (Combretum caffrum). They were discovered and isolated over a decade ago at ASU. In May 1997, OXiGENE and ASU entered into an option agreement to develop and test Combretastatins. The agreement granted OXiGENE an option to acquire an exclusive, world-wide, royalty-bearing license with respect to the family of Combretastatins’ commercial rights, which OXiGENE exercised and subsequently signed a license agreement with respect to on August 2, 1999. The agreement is to terminate upon expiration of the last patent, in any country, subject to the license or within two months of receipt of written notice of termination from the Company.

 

OXiGENE’s most clinically advanced compound in the Combretastatin family is ZYBRESTAT. Since its early-stage oncology clinical trials with ZYBRESTAT, which were initiated in the fourth quarter of 1998 and the first quarter of 1999, OXiGENE has made significant strides with the compound’s clinical advancement. Today, ZYBRESTAT is being evaluated in clinical trials both as a monotherapy and in combination with other cancer treatments. ZYBRESTAT is currently in one Phase II/III clinical trial, two Phase II clinical trials, and five Phase Ib or Ib/II clinical trials in various other key cancer indications. The compound is also believed to be the only VDA in a human clinical trial in combination with the anti-angiogenic agent, bevacizumab. Based on the various stages of its clinical development and the breadth of monotherapy and combination treatments being evaluated clinically, OXiGENE believes that ZYBRESTAT is the most advanced VDA candidate currently in clinical development.

 

In December 2001, the Company announced the selection of OXi4503 as its second clinical compound, and moved forward with preclinical development. Today, OXi4503 is the lead clinical compound in a class of drugs we have termed OQPs. OXi4503 has a profile of activity that appears to be distinct from that of ZYBRESTAT in that it appears to be able to cause tumor regression in a number of experimental tumor models when administered as a single-agent. While ZYBRESTAT has demonstrated the ability to act as a VDA and block blood flow to most central parts of the tumor when it is used alone, tumor regrowth can occur in many cases from a narrow rim of tumor cells surviving at the periphery adjacent to normal tissue. Current research suggests that, in addition to the effects on existing tumor blood vessels, OXi4503 is metabolized to a compound which appears to attack the surviving tumor cells in the tumor periphery. A Phase I dose-escalating clinical trial of OXi4503 in patients with advanced cancer was initiated in December 2004 and is currently ongoing.

 

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. 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 effect on tumors. Overall, this research suggests a compelling strategy to maximize the therapeutic potential of VDAs and anti-angiogenic drugs as a therapy against solid tumors.

 

Since other disease pathologies are associated with the abnormal development of new vessels, VDAs may also have applications in non-oncology indications. Promising data with ZYBRESTAT in animal models of ocular disorders associated with neovascularization led the Company, in conjunction with key partners, to investigate its use in various eye diseases. ZYBRESTAT has been studied in a Phase II trial to evaluate its effect in patients with myopic macular degeneration (MMD), which was completed in October 2006. Additionally, OXiGENE is conducting preclinical experiments to develop a topically-administered formulation of ZYBRESTAT that could be used to treat ophthalmological diseases and conditions, such as AMD, that are characterized by abnormal neovascularization resulting in loss of vision.

 

ZYBRESTAT.  The Company began testing ZYBRESTAT (fosbretabulin) in three Phase I dose-escalating clinical trials during the fourth quarter of 1998 and the first quarter of 1999. Each of these clinical trials, which examined the safety, pharmacokinetics and mode of action of ZYBRESTAT using three different dose regimens in patients with advanced solid tumors, has been completed. The key findings of these initial clinical trials are summarized below:

 

(1) ZYBRESTAT was well tolerated and side effects were manageable .

 

(2) A similar maximum tolerated dose was determined in each clinical trial.

 

(3) The side-effect profile did not display the typical toxicities associated with cytotoxic chemotherapeutic agents.

 

(4) ZYBRESTAT demonstrated reductions in tumor blood-flow at a range of doses in a variety of tumors.

 

(5) There is data to support biological and anti-vascular activity in humans with a meaningful therapeutic index.

 

(6) Promising signs of clinical effects were observed in 96 patients treated with ZYBRESTAT monotherapy with one complete response (1%) in a patient with anaplastic thyroid cancer, at least two partial responses (1-3%), and 21 (22%) patients achieving stable disease.

 

Following the successful completion of these initial three Phase I trials, ZYBRESTAT progressed to the next stage of clinical evaluation. During 2002 and 2003, ZYBRESTAT entered into various investigator-sponsored clinical trials, either as a monotherapy or in combination trials with either chemotherapy or radiotherapy. These early dose-escalating trials were designed to further inform the ZYBRESTAT clinical development program and to assess the drug candidate’s anti-tumor effects and safety profile. The combination trials were also conducted to evaluate the compatibility and potential synergistic effects of ZYBRESTAT with various cancer treatment modalities in key oncology indications.

 

In December 2004, OXiGENE announced the initiation a Phase II clinical trial of ZYBRESTAT in combination with carboplatin and paclitaxel. OXiGENE advanced ZYBRESTAT into this Phase II trial with chemotherapy based on positive results from a Phase I/II trial conducted at the Mount Vernon Hospital in London, UK. This Phase II trial led by Dr. Wallace Akerley, Director of Clinical Research at the Huntsman Cancer Center at the University of Utah, evaluated patients commonly treated with carboplatin and paclitaxel therapies, such as those with breast, lung or ovarian cancers, as well as two patients with anaplastic thyroid cancer (ATC). The trial was completed in December 2006. The imaging study confirmed blood flow shutdown in a wide variety of advanced imageable tumors, safety was in line with expectations and tumor responses were seen in multiple patients. The two patients with ATC experienced the greatest reductions in tumor blood-flow, with one achieving partial response and the other stable disease. An acceptable safety profile of ZYBRESTAT was observed when given along with carboplatin and paclitaxel, a widely-used chemotherapy regimen.

 

ZYBRESTAT in Oncology

 

Based on these trials, OXiGENE developed its core clinical development program with ZYBRESTAT in oncology, and set the foundation for what the Company believes to be its approval pathway in oncology with ZYBRESTAT.

 

ZYBRESTAT for the Treatment of ATC

 

The Company has determined to focus on ATC as its lead targeted indication in oncology for ZYBRESTAT in the immediate future. In June 2003, the FDA 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.

 

In July 2003, ZYBRESTAT was awarded orphan drug status for the treatment of advanced ATC and for the treatment of medullary, Stage IV papillary and Stage IV follicular thyroid cancers. In May 2006, ZYBRESTAT was awarded orphan drug status for the treatment of ovarian cancer. Orphan drug designations are granted to provide economic incentives to stimulate the research and development of promising products that treat rare diseases. The Orphan Drug Act provides for seven years of market exclusivity 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.

 

Currently, the Company is enrolling patients in a randomized, 180-patient, Phase II/III pivotal registration study designed to evaluate the combination of ZYBRESTAT, carboplatin and paclitaxel as a treatment for ATC.

 

ATC is an extremely aggressive and rapidly progressive cancer that the Company estimates each year afflicts approximately 1,000 to 4,000 people in the United States and Europe. ATC is a disease with an extremely high unmet medical need, as it is resistant to almost all forms of therapy tumor doubling time can be as brief as one week, and patients diagnosed with ATC have very limited prospects for survival. Median survival in several published ATC epidemiology / natural history studies was 3 months, and the one-year survival rate was less than 10% in one study. Of the seven ATC patients enrolled in the Company’s Phase I and II trials of ZYBRESTAT in ATC, one patient had a complete response, one patient had a partial response and a third patient achieved a stable disease response. Moreover, in our Phase I and II studies that employed tumor blood-flow imaging, patients with ATC and other forms of advanced, refractory thyroid cancer tended to experience the greatest reductions in tumor blood-flow, relative to patients with other solid tumors, following treatment with ZYBRESTAT. Of four patients with forms of advanced, refractory thyroid cancer besides ATC that were treated in our Phase I and II studies with ZYBRESTAT monotherapy, one achieved partial response and two achieved stable disease .

 

A Phase II ZYBRESTAT monotherapy trial was initiated in 2003 at the Ireland Cancer Center at University Hospitals of Cleveland to treat ATC. This trial was designed to evaluate the survival time of patients with regionally advanced and/or metastatic ATC treated with ZYBRESTAT in comparison to what has historically been extremely short survival time with conventional therapy. Interim results from this study, reported at the 2006 ASCO meeting, demonstrated that stable disease was achieved in approximately one-third of the patients. Subsequent reports from the principal investigator in this study indicate that seven of twenty-six ATC patients achieved stable disease, median survival was 4.7 months, one-year survival rate was 23%, and at least two patients had survived for more than 30 months. The Company believes these results compare favorably with those from published ATC natural history studies and evaluations of other potential treatments for ATC.

 

OXiGENE believes that, with orphan drug and fast track-designation status in ATC, there is an opportunity to be first to market with a VDA by undertaking a pivotal registration study in this indication. In July 2007, the Company initiated a Phase II/III clinical trial, pursuant to an SPA agreement with the FDA, to evaluate ZYBRESTAT as a potential treatment for ATC.

 

Phase II: ZYBRESTAT in Combination with Chemotherapy for the Treatment of Advanced, Platinum-Resistant Ovarian Cancer

 

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. Carboplatin and paclitaxel are commonly used cytotoxic agents in solid malignancies, such as ovarian cancer, and have been combined with each other, as well as other agents, leading to enhanced efficacy without compromising safety.

Despite advances in the management of 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. Platinum-resistant ovarian cancer thus represents a serious disease with a high unmet medical need.

 

In November 2005, OXiGENE announced that interim data from the Phase Ib portion of the ongoing Phase II ovarian study at the American Association for Cancer Research Meeting. The Phase 1b portion of the study was conducted in patients with a variety of advanced solid tumors and included 15 patients with inoperable ovarian cancer. The principal investigator in his presentation noted a 67% response rate to the combination treatment among a sub-population of evaluable patients with advanced, inoperable ovarian cancer (10 out of 15 evaluable patients) who were treated with a combination of ZYBRESTAT and chemotherapy, all of whom had failed previous, alternate cancer treatments. Tumor response was measured according to RECIST or CA125. Additionally, four ovarian cancer patients had disease stabilization during treatment. In this Phase 1b study, which included multiple refractory tumors, partial responses were also seen in patients with esophageal cancer and small cell lung cancer.

 

On September 21, 2005, the Company announced the initiation of a Phase II clinical trial evaluating ZYBRESTAT in triple combination therapy with carboplatin and paclitaxel — a widely used chemotherapeutic regimen — for the treatment of relapsed, advanced platinum-resistant ovarian cancer. The Simon two-stage design, Phase II triple combination trial is an open-label trial designed to determine the safety and efficacy of ZYBRESTAT in combination with carboplatin and paclitaxel. The trial is a UK-based multi-center study, and patient response is being evaluated using the international standard, RECIST, and CA125 response criteria.

 

On December 31, 2007, the Company announced that the pre-specified primary efficacy endpoint for Stage 1 of this ongoing study had been achieved with three of eighteen patients achieving a partial response by RECIST or CA125 criteria. Enrollment of an additional twenty-five patients in Stage 2 of the study is ongoing. In May 2006, ZYBRESTAT was awarded orphan drug status for the treatment of ovarian cancer.

 

Phase Ib: ZYBRESTAT in Combination with the Anti-Angiogenic Agent, Bevacizumab, for the Treatment of Solid Tumors

 

In September 2006, a publication in the journal Science revealed the results of a preclinical study evaluating the combination of VDAs with an anti-angiogenic drug to enhance suppression of tumor growth in mice. Using an anti-angiogenic drug, 24 hours prior to administration of either of OXiGENE’s VDAs, ZYBRESTAT or OXi4503, resulted in markedly enhanced anti-tumor activity in the study.

 

While anti-tumor VDAs, such as ZYBRESTAT, and anti-angiogenic agents, such as bevacizumab, both target a tumor’s blood vessels, they differ in their approach and in their 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 and years to prevent further growth of the tumor mass. As the tumor is not destroyed, it can form new feeder blood vessels after treatment has stopped. Anti-tumor VDAs, by comparison, 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. Furthermore, anti-angiogenic agents may be successful in targeting and preventing re-growth of the viable rim of a tumor, which remains relatively intact post-VDA treatment.

 

A growing body of preclinical and clinical data has demonstrated that the combination of a VDA compound and an anti-angiogenic agent could be a potentially potent therapeutic combination for both oncology and ophthalmology indications. OXiGENE believes that combining these two types of therapeutic agents could ultimately offer a new and viable treatment strategy destroying tumors or ocular neovascular

lesions not only by targeting new blood vessel growth, but also by destroying already-established blood vessel networks that feed tumors, or, in the case of ophthalmological diseases and conditions, lead to loss of vision.

 

On November 16, 2005, we reported that an investigator presented preclinical data that indicated that the combination of ZYBRESTAT or OXi4503, OXiGENE’s second clinical product candidate, with the anti-angiogenic drug, bevacizumab, showed biological and anti-tumor activity. Both ZYBRESTAT and OXi4503, when administered in combination with bevacizumab, appeared to demonstrate improved anti-tumor effects versus treatment with ZYBRESTAT, OXi4503 or bevacizumab as a single agent. Tumor response was measured by tumor growth delay in a human renal cell carcinoma model (Caki-1). The results suggested that treatment with bevacizumab and ZYBRESTAT or OXi4503 resulted in statistically significant tumor growth delays, and that both ZYBRESTAT and OXi4503 appeared to be effective at causing vasculature damage and tumor cell death in the central regions of solid tumors. The study also suggested that OXi4503 reduced the peripheral rim of tumor cells that can lead to tumor re-growth.

 

Based on this preclinical evidence, on December 5, 2005 OXiGENE announced the initiation of a Phase Ib clinical trial to evaluate ZYBRESTAT in combination with bevacizumab in patients with advanced solid tumors. This is the first human clinical trial to pair a vascular disrupting compound and an anti-angiogenic agent in the treatment of cancer, specifically in people who have failed previous treatments and who are in advanced stages of disease.

 

OXiGENE’s Phase Ib combination trial with bevacizumab is 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 are being evaluated in combination with an approved dose of bevacizumab. If the maximum tolerated dose is not one of the three doses being investigated, further escalation will not be conducted. Tumor response is being evaluated according to RECIST. Pharmacodynamic effects to assess blood flow shutdown of tumor vasculature will be assessed with Dynamic Contrast Enhanced Magnetic Resonance Imaging, or DCE-MRI. In October 2007, the Company reported interim results from this trial indicating that the two-drug combination appeared safe and well-tolerated with early signs of clinical efficacy (prolonged stable disease in several patients) and additive effects on tumor blood-flow inhibition. OXiGENE believes that this is the first-ever clinical trial combining a VDA and an anti-angiogenic agent. The Company anticipates reporting final results from this trial in 2008.

 

Based on results from the ZYBRESTAT — bevacizumab Phase Ib combination study, in March 2008, the Company plans to initiate a Phase II, randomized, parallel arm trial evaluating a regimen of ZYBRESTAT plus bevacizumab and standard chemotherapy, as compared to bevacizumab plus standard chemotherapy alone, in patients with NSCLC.

 

In addition to these core clinical programs in oncology, ZYBRESTAT is currently being studied in several investigator-sponsored clinical trials. OXiGENE believes that the results from investigator-sponsored trials will add to its knowledge concerning the effects of ZYBRESTAT in a variety of tumor types and when administered in combination with chemotherapy, radiation, and/or targeted therapies.

 

Other Clinical Trials with ZYBRESTAT in Oncology:

 

A Phase Ib clinical study evaluating ZYBRESTAT in combination with radiotherapy for the treatment of NSCLC as well as patient cohorts with prostate cancer and head and neck cancer was initiated in 2004. On October 5, 2005, the investigator from the Mount Vernon Hospital in London presented interim trial data for the cohort of patients with NSCLC. The presentation was given at the National Cancer Research Institute’s Cancer Conference held in Birmingham, United Kingdom. The Phase Ib trial included two cohorts of patients with NSCLC who received radiotherapy and either a single dose of ZYBRESTAT at the end of the first week of radiotherapy treatment or once weekly doses of ZYBRESTAT for three weeks. The investigator noted in his presentation that those patients who received weekly ZYBRESTAT for three weeks, as compared to those patients who received a single dose of ZYBRESTAT, showed a trend of increase in the median survival to approximately one year. The investigator also reported that increased radiation toxicities had not been observed when ZYBRESTAT was administered, and that the side effects of ZYBRESTAT observed to date were mild

and self-limiting. This trial evaluating ZYBRESTAT with radiotherapy and cetuximab remains ongoing in the head and neck patient cohorts.

 

OXi4503 in Oncology

 

OXiGENE initiated a clinical trial with its second oncology candidate, OXi4503. In December 2004, the Company announced the initiation of a Phase I trial of OXi4503 in patients with advanced, solid tumors. OXi4503 has been shown in animals to have potent anti-tumor activity as both a single-agent and in combination therapy. OXi4503 is of particular interest in that it exhibits not only the vascular disrupting properties characteristic of our lead vascular targeting agent ZYBRESTAT, but also appears to cause direct killing of some types of tumor cells in vitro.

 

The trial, which is being conducted by Cancer Research UK, is a dose-escalating trial in which the primary endpoints are safety, tolerability and pharmacokinetics. Although ostensibly a Phase I safety trial, the protocol design has incorporated advanced testing to monitor patients through extensive blood work, MRI and Positron Emission Tomography, or PET scans to gain further insight into the mechanism of action of OXi4503. Two clinical centers in the UK are involved in the trial.

 

In October 2007, the Company reported that interim results from this trial, and OXi4503 was observed to be well tolerated with no dose-limiting toxicity seen to date at dosages corresponding to maximum-tolerated dosages in preclinical studies. 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 several patients. The Company anticipates receiving data from this clinical trial in the first half of 2008.

 

ZYBRESTAT in Diseases of the Eye

 

Abnormal neovascularization characterizes of 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, age-related macular degeneration, and neovascular glaucoma, and the Company believes that a topical formulation of ZYBRESTAT could have therapeutic utility and address significant unmet medical needs in a number of these diseases/conditions. The Company and/or its collaborators have published encouraging results from preclinical studies with ZYBRESTAT in various preclinical models of ophthalmological diseases characterized by abnormal neovascularization, and in February 2007, we announced positive results from a 23-patient, Phase II clinical trial of intravenously-administered ZYBRESTAT in MMD. The Company believes the results from this study establish human proof-of-concept for ZYBRESTAT in ophthalmological indications and suggest that if the Company is successful in developing a topical formulation of ZYBRESTAT that delivers therapeutic concentrations of ZYBRESTAT to target tissues in the eye (e.g., the retina and choroid in the case of AMD), it is likely to have clinical activity in ophthalmological diseases characterized by abnormal neovascularization that results in loss of vision. In December 2007, the Company reported results from a preclinical 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. A similar confirmatory preclinical study in primates has recently concluded confirming data from earlier rabbit and rodent studies. Based on these results, the Company anticipates submitting an IND or equivalent to support clinical evaluation of ZYBRESTAT topical in an ophthalmological indication or indications by the middle of 2008 and initiating a clinical study or studies in patients with ophthalmological disease later in 2008.

 

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, refusals 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 preclinical testing stage. Preclinical tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies. An IND sponsor must submit the results of the preclinical 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 first phase 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 preclinical 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 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, preclinical 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.

 

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 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 preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.

 

Pediatric exclusivity is another type of exclusivity in the United States. 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.

 

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 postmarket 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. FDA’s postmarket authority takes effect 180 days after the enactment of the law. 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, which is compulsory for medicines produced by certain biotechnological processes and optional for those which are highly innovative, provides for the grant of a single marketing authorization that is valid for all European Union member states. For drugs without approval in any Member State, the decentralized procedure provides for 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.

 

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. Medicare Part D went into effect on January 1, 2006. 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 approved after January 1, 2006. 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’s strategy is to develop innovative therapeutics for oncology and to leverage its technology in the field of ophthalmology. The principal focus of the Company, in the foreseeable future, is to complete the clinical development of its compounds ZYBRESTAT and OXi4503 and to identify new preclinical candidates that are complementary to our VDAs and OQPs. 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 2007, 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, or 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 upon expiration of the last patent, in any country, subject to the licence 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 May 2003, Cancer Research UK agreed to complete specified pre-clinical studies on OXi4503 and to then move the compound into Phase I human clinical trials. Cancer Research UK is Europe’s leading cancer charity, dedicated to curing, treating and preventing the disease through world-class research. The charity relies almost entirely on voluntary donations from the public to fund the vital work of its 3,000 scientists, doctors and nurses.

 

Unless and until the Company enters into any new material collaborations, with respect to ZYBRESTAT and/or the related Combretastatin family of compounds, the Company intends to advance its potential product candidates through the next stages of clinical trials and development independently.

 

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 U.S. and foreign patent applications to protect technology, inventions and improvements to inventions that are commercially important to the development of our 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. The Company has 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 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 AstraZeneca, sanofi-aventis, Antisoma, Nereus and MediciNova, all of which have VDAs that management believes are at an earlier stage of clinical development than the Company’s lead compound, ZYBRESTAT.

 

The Company is aware of a number of companies engaged in the research, development and testing of new cancer therapies or ways of increasing the effectiveness of existing therapies. Such companies include, among others, AstraZeneca, sanofi-aventis, Bayer, Bristol-Myers Squibb, Abbott Laboratories, Inc., Aeterna Laboratories Inc., Eli Lilly and Company, EntreMed Inc., Genentech, GlaxoSmithKline, Johnson & Johnson, Millennium, NeoPharm, Inc., Novartis AG, Pharmacyclics, Inc., Pfizer Inc., and Pierre Fabre S.A., some of whose products have already received, or are in the process of receiving, regulatory approval or are in later-stages of clinical trials.

 

There can be no assurance that the Company’s competitors will not succeed in developing technologies and products that are more effective, safer or more affordable than those being developed by the Company.

 

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 February 15, 2008 the Company had twenty one (21) full-time employees, of which eleven (11) were engaged in research and development and monitoring of clinical trials. Most of the Company’s pre-clinical testing and clinical trials are subcontracted and performed at universities in the United States and Europe with the assistance of contract research organizations.

 

SCIENTIFIC ADVISORY BOARD AND CLINICAL TRIAL ADVISORY BOARD

 

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.

 

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.

 

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. He is involved in clinical trials of anti-angiogenesis therapy, signal blockade inhibitors and immunotherapy. His clinical research interests include breast cancer, melanoma, and renal cancer.

 

ROBERT S. KERBEL, Ph.D. is an internationally recognized tumor biologist known for his studies in cancer metastasis, drug resistance and tumor angiogenesis. He 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. Dr. Kerbel is a Senior Scientist in Molecular and Cell Biology Research, which he directed from 1991-2002, at the Sunnybrook and Women’s College Health Sciences

Centre in Toronto. He is the author of more than 250 scientific papers and the recipient of numerous scientific awards. Dr. Kerbel serves on the editorial boards of seven scientific journals, including Cancer Research, Clinical Cancer Research, American Journal of Pathology, Cell Cycle, Molecular Cancer Research and Angiogenesis. He was Editor-in-Chief of Cancer & Metastasis Reviews from 1991 to 2001.

 

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. In addition, he is a Professor in the school’s Department of Pharmacology and Therapeutics. Dr. Siemann has authored more than 150 scientific papers and is the recipient of numerous scientific awards, including the Research Award of the Radiation Research Society in Oak Brook, Illinois (1990). He is the former Chairman of the National Cancer Institute’s Radiation Study Section (1996-1998).

 

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. His training is in Medicine, Mathematics and Biochemistry. He has had a long involvement in anticancer drug development starting while he was working at the Institute for Cancer Research / Royal Marsden Hospital in London. Since 1989 he has worked in the University of Newcastle at Tyne and has implemented a program of drug development, aimed at using the molecular pathology of human cancers to define targets, developing drugs aimed at those targets and performing preclinical and early clinical studies. In 2005, he was awarded the Pfizer Research Innovation Award for his work on developing new anticancer drugs.

 

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. Dr. Heier’s academic appointments include an instructorship in ophthalmology at Tufts University School of Medicine and Harvard University Medical School, both in Boston. Dr. Heier received a medical degree from Boston University School of Medicine in Massachusetts, and subsequently completed a transitional internship, ophthalmic residency, and vitreoretinal fellowship at Fitzsimons Army Medical Center. Additional postgraduate training includes a vitreoretinal fellowship completed at Ophthalmic Consultants of Boston/Tufts University School of Medicine. Dr. Heier’s research interests are focused on age-related macular degeneration (AMD), diabetic retinopathy, and innovation in vitreoretinal surgical instrumentation: areas he has pursued as lead or principal investigator in numerous clinical trials.

 

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. Until recently he was also Head of the Gynecology Unit at the Royal Marsden Hospital. He is now responsible for one of the world’s largest Phase I Units, incorporating 10 in-patient and 5 outpatient beds, over 40 staff and over 20 current new drug trials. Between 150 and 200 patients per year now enter Phase I trials in the Unit. He is the author of over 300 peer reviewed papers, he sits on the Editorial Board of 12 cancer journals, and has held various national and international responsibilities, most notably in Cancer Research UK for which he currently chairs the Clinical and Translational Research Committee.

 

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. He holds a position as Chief Physician at the Department of Oncology (Radiumhemmet), Karolinska Hospital, Stockholm, and has specialist certificates in Oncology, Hematology and Internal Medicine. He is a Member of the Board of Directors of ESMO (European Society for Medical Oncology) and a Member of ESMO’s Executive Committee. Professor Mellstedt is currently a member of the Editorial Board of several international scientific journals and has published more than 450 articles in the areas of hematology and has made contributions to Biomolecular Technologies.

 

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. He is the former Adjunct Assistant Professor at UCLA’s Department of Medicine, Division of Hematology-Oncology and served as

Director of UCLA’s Cancer Therapy Development Program from 1996-2002. Dr. Rosen serves as the principal investigator for many Phase I and II clinical trials, focusing on novel agents in general and the angiogenesis inhibitors in particular.

 

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. He has published widely on management of gynecological cancers and germ cell tumors and the use of tumor markers. He has developed response criteria on CA125, which are now increasingly used in Phase II trials of ovarian cancer. He has recently been the principal investigator of two trials of vascular targeting agents, as well as several trials in ovarian cancer. He was awarded an Honorary Professorship by University College London in March 2001.

 

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. Professor Vermorken has held numerous functions with the Dutch Cancer Society and the European Organization for Research on Treatment of Cancer (EORTC). He is a member of several EORTC study groups and presently is Secretary of the EORTC Head and Neck Cancer Group. Professor Vermorken has lectured extensively in the area of gynecological oncology and head and neck cancer, and currently serves on the editorial boards of several international journals.

 

 

Statements in this Annual Report under the captions “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as oral statements that may be made by the Company or by officers, directors or employees of the Company acting on the Company’s behalf, that are 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 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, 2007, had an accumulated deficit of approximately $137,801,000. 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 and OQP 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.

 

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 preclinical 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 preclinical 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 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 preclinical 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.

 

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.

 

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 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.

 

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 will be required to raise additional funds to finance our operations; 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. 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 actual capital requirements will depend on numerous factors, including: the progress of and results of our preclinical 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.

 

Under our current operating plan and capital budget, and based on our current cost expectations and levels of operations, we anticipate that our cash, cash equivalents and available-for-sale marketable securities together with the utilization of funds available under our Committed Equity Financing Facility with Kingsbridge Capital Limited, will be sufficient to satisfy our projected cash requirements at least through the first quarter of fiscal 2009, including substantial advancement of currently ongoing clinical trials towards FDA approval of ZYBRESTAT and OXi4503, our lead clinical-stage compounds. We cannot predict with any certainty the success of any clinical trials, whether or not FDA approval will ultimately be obtained, and if obtained, whether such approval will be conditioned or take longer than expected. Due to the numerous risks and uncertainties of the drug development and FDA approval process, we cannot guarantee that our current cash, cash equivalents and capital will be sufficient to fund operations for the full time period described above. If our existing funds are not sufficient, we would be required to seek additional funding and/or take other measures to reduce expenses.

 

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.

 

In the event that all of the capital infusion initiatives discussed above are unsuccessful and should we be unable to sell shares under the CEFF due to the limitations contained in the CEFF agreement by the end of our fiscal 2008 second quarter, we are prepared to implement cost reduction measures. These cost reduction measures would include the cessation or delay of at least two of the current or planned clinical studies of ZYBRESTAT and other supporting projects, the reduction and delay in hiring of development and administrative staff, the cessation of our preclinical study of our in-licensed antibody protein — OXiMAb-24A, the delay or reduction in early stage development efforts in research with respect to our second-generation VDA, OXi4503, and the reduction of certain employee incentive programs.

In addition, we will likely have to raise substantial additional funds: if FDA approval is obtained with respect to our ZYBRESTAT and OXi4503 compounds, to bring such compounds to market, including arranging for or developing manufacturing capabilities and completing marketing and other commercialization activities related to ZYBRESTAT and OXi4503; to complete the development of any additional products other than the development and FDA approval process related to ZYBRESTAT and OXi4503; and to bring any other potential product to market. The issuance of additional equity securities by us, if required to support these or any other purposes, would result in dilution to our existing stockholders. Additional financing may not be available on acceptable terms when needed, if at all. If adequate funds are not available on acceptable terms when needed, we would be required to delay, scale back or eliminate one or more of our product development programs or seek to obtain funds through arrangements with collaborative partners or others, which arrangements may include a requirement that we relinquish rights to certain of our technologies or products or rights related to our technologies or products that we would not otherwise relinquish. Our failure to obtain funding when and in the amounts needed and/or our acceptance of funding on terms that are not favorable to us or less favorable to us than we would ordinarily desire, would have a material adverse effect on our financial position and results of operations.

 

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, preclinical 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. Preclinical testing and clinical trials and manufacturing and marketing of our products are and will continue to be subject to the rigorous testing and approval processes 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.

 

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 Medicare Prescription Drug Improvement and Modernization Act, 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.

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 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, 2007, we were the holder, sole assignee or co-assignee of thirty one (27) granted United States patents, twenty four (28) 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 preclinical and clinical tests 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.

 

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 Joel-Tomas Citron, our Chairman of the Board, Dr. David Chaplin, our Executive Vice Chairman of the Board and Chief Scientific Officer, Dr. Richard Chin, our President and Chief Executive 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 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.

 

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 initial 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.

 

Our restated certificate of incorporation, our amended and restated by-laws, our shareholder 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 shareholders 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.

 

 

None

 

 

The Company’s corporate headquarters is located in Waltham, Massachusetts where it leases a total of approximately 13,000 square feet of office space. The base term of the lease at the Waltham facility is five years and nine months, commencing on September 1, 2003 and expiring in May 2009. The Company continues to pay rent on its former headquarters location in Watertown, Massachusetts which it sublets. The primary lease on the Watertown facility expires in November 2010. The base term of the sublease on the Watertown facility expires in August 2008 and contains an option to extend the sublease for two years and two months from the expiration of the base term. The Company expects that either the current subtenant will exercise its option to extend the sublease or it will be able to find another suitable subtenant for the space for the remainder of the lease term. In September 2005, the Company executed a lease for approximately 600 square feet of office space in the Oxford Science Park, Oxford, United Kingdom. The lease is a month to month lease. The Oxford facility primarily houses research and development personnel. In March 2007, the Company executed a service agreement with Regus Business Centre for office space in San Bruno, California. This agreement expires on May 31, 2008 with an option to extend upon written notice given 90 days prior to of the termination date. The Company rents fully equipped offices where Regus provides administrative support. There were 6 offices rented under this agreement as of December 31, 2007. The Company does not own or lease any laboratories or other research and development facilities.

 

 

The Company is not a party to any litigation in any court, and management is not aware of any contemplated proceeding by any governmental authority against the Company.

 

 

No matters were submitted to a vote of security holders of the Company during the fiscal quarter ended December 31, 2007.

 

 

The Company’s common stock is traded on the Nasdaq Global Market under the symbol “OXGN.” The Company’s shares of common stock are also traded on the OM Stockholm Exchange in Sweden under the symbol “OXGN.” The following table sets forth the high and low sales price per share for the Company’s common stock on the Nasdaq Global Market for each quarterly period during the two most recent fiscal years.

 

 

On February 21, 2008, the closing price of the Company’s common stock on the Nasdaq Global Market was $2.06 per share.

 

As of February 21, 2008, there were approximately 83 stockholders of record of the approximately 28,542,000 outstanding shares of the Company’s common stock. The Company believes, based on the number of proxy statements and related materials distributed in connection with its 2007 Annual Meeting of Stockholders, that there are approximately 15,000 beneficial owners of its common stock. The Company has not declared or paid any cash dividends on its common stock since its inception in 1988, and does not intend to pay cash dividends in the foreseeable future. The Company presently intends to retain future earnings, if any, to finance the growth and development of its business.

 

 

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, 2007. The selected financial data for each of the five years in the period ended December 31, 2007 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.

 

 

 

Amounts related to amortization of license agreement were separately stated during the years ended December 31, 2004 and 2003 but have been reclassified to research and development expense to conform to the current year presentation.

 

The other income amount in fiscal 2003 is primarily attributable to the recognition of $600,000 of previously unrecognized foreign currency translation gain in connection with the completion of the liquidation of the Company’s Swedish subsidiary, OXiGENE AB.

Amounts related to rent loss accrual were included in accrued other current liabilities during the years ended December 31, 2006, 2005 and 2004 but have been reclassified to long term liabilities to conform to the current year presentation.

 

 

Our management’s discussion and analysis of financial condition 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 our actual results or outcomes to be materially different from those anticipated and discussed herein. Important factors that we believe 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, we operate in an industry sector where securities values are volatile and may be influenced by regulatory and other factors beyond our control.

 

We are a clinical-stage, biopharmaceutical company developing novel therapeutics to treat cancer and eye diseases. Our primary focus is the development and commercialization of drug candidates referred to as vascular disrupting agents (VDAs) that selectively disrupt abnormal blood vessels associated with solid tumor progression and visual impairment, which are characterized by abnormal blood vessel growth. Because our VDA product candidates act via a well-validated therapeutic mechanism, inhibition of blood flow to tumors and neovascular lesions within the eye, we believe the risk associated with our drug development programs is lower than that of many other agents that act via unvalidated therapeutic mechanisms.

 

Our most advanced therapeutic product candidate, ZYBRESTAT^tm, is currently being evaluated in a Phase II/III pivotal registration study as a potential treatment for anaplastic thyroid cancer, a highly aggressive and lethal malignancy for which there are currently no approved therapeutics and extremely limited treatment options. In addition, ZYBRESTAT is being evaluated in Phase Ib and II clinical trials, in combination with established cancer treatment modalities, as a potential treatment for other solid tumors, including non-small cell lung cancer (NSCLC), platinum-resistant ovarian cancer, and head-and-neck cancer. Based upon preclinical results first published by our collaborators in the November 2007 online issue of the journal Blood, we believe that ZYBRESTAT and our other VDA product candidates may also have utility in the treatment of hematological malignancies or “liquid tumors.”

 

In addition to developing ZYBRESTAT as an intravenously administered therapy for cancer indications, we are developing a topical formulation of ZYBRESTAT for ophthalmological diseases and conditions, such as age-related macular degeneration that are characterized by abnormal blood vessel growth within the eye that results in loss of vision. We believe that a safe, effective convenient and topically-administered anti-vascular therapeutic would have advantages over currently-approved anti-vascular, ophthalmological therapeutics, which must be injected directly into patients’ eyes on a frequent basis. We currently anticipate initiating in 2008 human clinical studies with a topical formulation of ZYBRESTAT in an ophthalmological indication.

 

We are currently evaluating a second-generation VDA product candidate, OXi4503, in a Phase 1 clinical study in patients with advanced solid tumors. We refer to OXi4503 as an ortho-quinone prodrug. In preclinical studies, OXi4503 has shown potent anti-tumor activity, both as a single-agent, and in combination with other cancer treatment modalities. We believe that OXi4503 is differentiated from other VDAs by its ability to exert (i) potent vascular disrupting effects on tumor vasculature; and (ii) direct cytotoxic effects on tumor cells in a tumor-preferential fashion.

 

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 that we believe will be complementary with our later-stage VDA product candidates.

Financial Resources

 

We have generated a cumulative net loss of approximately $137,801,000 for the period from our inception through December 31, 2007. 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.

 

As of December 31, 2007, we had approximately $28,438,000 in cash, cash equivalents and marketable securities. We primarily invest in commercial paper, investment-grade corporate bonds, asset backed securities and money market funds. 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, 2007, the weighted average days to maturity of our available-for-sale marketable securities was approximately 66 days, and the yield to maturity based on the cost of those investments was approximately 4.9%. We expect that income from these investments may decrease in fiscal 2008 as compared to fiscal 2007 due to an expected lower average balance of invested funds and a lower average yield.

 

 

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

 

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 as well as program structured financing facilities, in order to continue the development of our potential product candidates.

 

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. Currently, greater than 50% of 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 our contracts with them. 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.

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). We review this asset for impairment if indicators of impairment are present using an undiscounted net cash flows approach, in accordance with the Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-lived Assets (“SFAS 144”). SFAS 144 requires that if the undiscounted cash flows of an intangible asset are less than the carrying value of an intangible asset, an impairment is to be recognized in earnings equal to the amount by which the carrying value of the asset exceeds its fair value. Differences in estimates used in assessing the recoverability of these assets could result in impairment charges, which could have a material impact on our results of operations. To date, we have not recorded any impairment in this recorded asset since our initial capitalization.

 

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. The majority of the stock option expense recorded in fiscal 2007 relates to continued vesting of stock options and restricted stock that were granted prior to January 1, 2006. In accordance with the transition provisions of SFAS 123R, the grant date estimates of fair value associated with prior awards, 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. During the fourth quarter of 2007, we adjusted the forfeiture rate from 0% to 10% for the directors and officers group. The adjustment was based on review of historical data of actual forfeiture experience of this group. This resulted in a reduction to stock-based compensation of $314,000 in fiscal 2007 for retroactively increasing the forfeiture rate from 0% to 10%. 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.

 

Recent Accounting Pronouncements

 

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 to 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 does not expect the adoption of SFAS 141R 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 does not expect the adoption of EITF 07-1 to have a material effect on its financial position or results of operations.

 

In June 2007, the Emerging Issues Task Force (“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 is effective for new contracts entered into after January 1, 2008. We do not expect the adoption of EITF 07-3 to have a material effect on our financial position or results of operations.

 

In February 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) 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 is effective for fiscal years beginning after November 15, 2007. We do not expect the adoption of SFAS 159 to have a material effect on our financial position or results of operations.

In September, 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) SFAS No. 157, entitled “Fair Value Measurements” (SFAS 157). This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. We do not expect the adoption of SFAS 157 to have a material effect on our financial position or results of operations.

 

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.

 

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 2008 unless and until we enter into new collaborations providing for funding through the payment of licensing fees and up-front payments.

 

Costs and Expenses

 

The following table summarizes our operating expenses for the periods indicated, in thousands and as a percentage of total expenses:

 

 

We expect that as we continue to develop our 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 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.

 

We expect that with the continued development of our two lead candidates, ZYBRESTAT and OXi4503 in oncology and ophthalmology, as well as our discovery efforts for novel compounds, 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:

 

 

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.

 

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

 

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.

Tax Matters

 

As of December 31, 2007, we had net operating loss carry-forwards of approximately $130,685,000 for U.S. income tax purposes, which expire through 2027. 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 $8,485,000 and approximately $6,483,000 for the years ended December 31, 2007 and 2006, respectively, due primarily to the increase in net operating loss carry-forwards.

 

Years ended December 31, 2006 and 2005

 

Revenues

 

We did not recognize any licensing revenue during the fiscal year ended December 31, 2006 and recognized licensing revenue of approximately $1,000 during the fiscal year ended December 31, 2005. These amounts were received in connection with the license of our nutritional and diagnostic technology.

 

Costs and Expenses

 

The following table summarizes our operating expenses for the periods indicated, in thousands and as a percentage of total expenses:

 

 

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:

 

 

Increases in both employee compensation and related expenses and external services-related expenses in fiscal 2006 account for 88% of the increase in research and development expenses overall. The increase in employee compensation and related costs is attributable to both a restructuring charge of approximately $468,000 in the third quarter of fiscal 2006 and an increase in the average number of employees in fiscal 2006 over fiscal 2005 of approximately 30%. The purpose of the restructuring was primarily to streamline our clinical development operations in order to improve the effectiveness of efforts to develop our potential product candidates.

External services expenses are comprised of costs incurred for consultants and contractors that assist in the management and support of our development programs. The increase in these costs in fiscal 2006 over fiscal 2005 is attributable to the further development of our two primary potential product candidates, ZYBRESTAT in both oncology and ophthalmology and OXi4503 in oncology. The increase in stock-based compensation expense is attributable to the adoption of SFAS 123R in 2006 requiring the recognition of an expense for all stock-based compensation awards.

 

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 single largest increase in general and administrative expenses in fiscal 2006 from fiscal 2005 related to stock-based compensation. This increase was due to our adoption of SFAS 123R in 2006 as well as recognition of a full year of expense for restricted stock granted in the fourth quarter of 2005. SFAS 123R requires the recognition of an expense for all stock-based compensation awards. The increase in employee compensation and related expenses is attributable to costs of approximately $332,000 in the second quarter of 2006 in connection with a change in senior management and an increase in average number of employees of approximately 18% in fiscal 2006 over fiscal 2005. This was offset by a decrease in consulting and professional services costs primarily in connection with market analysis work performed in fiscal 2005 and not repeated in fiscal 2006.

 

Other Income and Expenses

 

Investment income increased by approximately $1,367,000, or 120%, in fiscal 2006, compared to fiscal 2005, primarily due to higher average interest rates and returns on investments and, to a lesser extent, higher average cash, cash equivalents and available-for-sale marketable securities balances during the respective periods.

 

To date, we have financed our operations principally through net proceeds received from private and public equity financing. We have experienced net losses and negative cash flow from operations each year since our inception, except in fiscal 2000. As of December 31, 2007, we had an accumulated deficit of approximately $137,801,000. We expect to incur increased expenses, resulting in losses, over at least the next several years due to, among other factors, our continuing clinical trials and anticipated research and development activities. We had cash, cash equivalents and available-for-sale securities of approximately $28,438,000 at December 31, 2007.

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

 

 

Approximately 90% or $1,792,000, of the non-cash adjustments to net loss relates to compensation expense from the issuance of options and restricted stock. Changes in operating assets for fiscal 2007 include an increase in accounts payable and accrued liabilities of $1,078,000.

 

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 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 less, is 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 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 are required to file a registration statement in order to register the resale by Kingsbridge of the shares issuable to Kingsbridge under the CEFF within 60 days of February 19, 2008.

 

Our anticipated cash requirement for fiscal 2008 is expected to be between $22,000,000 and $28,000,000. Our cash utilization amount is highly dependent on the progress of our potential product development programs, particularly 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. We expect to augment our cash, cash equivalent and marketable securities balances as of December 31, 2007 of $28,438,000 with the utilization of our newly implemented CEFF as well as through other forms of capital infusion. With such resources we expect to satisfy our cash requirements at least through the first quarter of fiscal 2009. Our primary anticipated uses of funds during the 2008 fiscal year involve the preclinical and clinical development of our product candidates under development. 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 VDAs and OQPs under development, including ZYBRESTAT, our lead compound, 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.

 

In addition to equity capital financing, we continue 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, as well as program structured financing facilities in order to continue the development of our potential product candidates.

 

If our existing funds are not sufficient to continue operations, we would be required to seek additional funding and/or take other measures. There can be no assurance that additional financing will be available on acceptable terms when needed, if at all.

 

In the event that all of the capital infusion initiatives discussed above are unsuccessful and should we be unable to sell shares under the CEFF due to the limitations contained in the CEFF agreement by the end of our fiscal 2008 second quarter, we are prepared to implement cost reduction measures. These cost reduction measures would include the cessation or delay of at least two of the current or planned clinical studies of ZYBRESTAT and other supporting projects, the reduction and delay in hiring of development and administrative staff, the cessation of our preclinical study of our in-licensed antibody protein — OXiMAb-24A, the delay or reduction in early stage development efforts in research with respect to our second-generation VDA, OXi4503, and the reduction of certain employee incentive programs.

 

Contractual Obligations

 

The following table presents information regarding our contractual obligations and commercial commitments as of December 31, 2007 in thousands:

 

 

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 $143,000 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, 2007, 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.

 

In March 2007, we 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. We paid Intracel $150,000 in March 2007 as an up-front license fee that provides full control over the development and commercialization of an anti-B-cell monoclonal antibody therapeutic, OXiMAb-24A. We expensed the up-front payment to research and development expense. The agreement provides for additional payments to Intracel based on the achievement of certain clinical milestones and royalties. These potential additional payments are not included in the contractual obligation table presented above due to their contingent nature.

 

 

At December 31, 2007, we did not hold any derivative financial instruments, commodity-based instruments or other long-term debt obligations. We have adopted an Investment Policy, the primary objectives of which are to preserve principal, maintain proper liquidity to meet operating needs and maximize yields while preserving principal. Although our investments are subject to credit risk, we follow procedures to limit the amount of credit exposure in any single issue, issuer or type of investment. Our investments are also subject to interest rate risk and will decrease in value if market interest rates increase. However, due to the conservative nature of our investments and relatively short duration, we believe that interest rate risk is mitigated. Our cash and cash equivalents are maintained in U.S. dollar accounts. Although we conduct a number of our trials and studies outside of the United States, we believe our exposure to foreign currency risk to be limited as the arrangements are in jurisdictions with relatively stable currencies.

 

 

See Item 15 for a list of our Financial Statements and Schedules and Supplementary Information filed as part of this Annual Report.

 

 

Not applicable.

 

 

Evaluation of our Disclosure Controls and Procedures

 

The Securities and Exchange Commission requires that as of the end of the period covered by this Annual Report on Form 10-K, the Chief Executive Officer, CEO, and the Chief Financial Officer, CFO, evaluate the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and report on the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective to provide reasonable assurance that we record, process, summarize and report the information we must disclose in reports that we file or submit under the Exchange Act, within the time periods specified in the SEC’s rules and forms.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting, identified in connection with the evaluation of such control that occurred during the fourth quarter of our fiscal year ended December 31, 2007, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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, 2007 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, 2007.

 

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.

 

Our independent registered public accounting firm has issued an audit report on the effectiveness of our internal control over financial reporting. This report is included below.

Report of Independent Registered Public Accounting Firm

 

The Board of Directors and Shareholders

OXiGENE, Inc.

 

We have audited OXiGENE, Inc.’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). OXiGENE, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

 

We conducted our audit 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

In our opinion, OXiGENE, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on the COSO criteria.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the balance sheets of OXIGENE, Inc. as of December 31, 2007 and 2006 an the related statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2007 and our report dated March 13, 2008 expressed an unqualified opinion thereon.

 

 

Boston, Massachusetts

March 13, 2008

 

Not applicable.

 

 

The response to this item is incorporated by reference from the discussion responsive thereto under the captions “Proposal 1 — Election of Directors,” “Board and Committee Meetings,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Executive Officers of the Company” and “Code of Conduct and Ethics” in the Company’s Proxy Statement for the 2008 Annual Meeting of Stockholders.

 

 

The response to this item is incorporated by reference from the discussion responsive thereto under the caption “Executive Compensation” in the Company’s Proxy Statement for the 2008 Annual Meeting of Stockholders.

 

 

The response to this item is incorporated by reference from the discussion responsive thereto under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in the Company’s Proxy Statement for the 2008 Annual Meeting of Stockholders.

 

 

The response to this item is incorporated by reference from the discussion responsive thereto under the captions “Certain Relationships and Related Transactions,” “Board and Committee Meetings” and “Executive Compensation” in the Company’s Proxy Statement for the 2008 Annual Meeting of Stockholders.

 

 

The response to this item is incorporated by reference from the discussion responsive thereto under the caption “Audit Fees” in the Company’s Proxy Statement for the 2008 Annual Meeting of Stockholders.

 

 

(a) The following documents are filed as part of this Annual Report on Form 10-K.

 

(1) Financial Statements

 

See financial statements listed in the accompanying “Index to Financial Statements” covered by the Report of Independent Registered Public Accounting Firm.

 

(2) Financial Statement Schedules

 

None.

(3) Exhibits

 

The following is a list of exhibits filed as part of this Annual Report on Form 10-K.

 

 

 

 

 

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.

 

Richard Chin, M.D.

President and Chief Executive Officer

 

Date: March 14, 2008

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed 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 Financial Statements

 

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

 

 

The Board of Directors and Stockholders

OXiGENE, Inc.

 

We have audited the accompanying balance sheets of OXiGENE, Inc. as of December 31, 2007 and 2006, and the related statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2007. 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as 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 financial position of OXiGENE, Inc. at December 31, 2007 and 2006, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), OXiGENE, Inc.’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 13, 2008 expressed an unqualified opinion thereon.

 

As discussed in Note 1 to the financial statements, effective January 1, 2006, OXiGENE, Inc. adopted Statement of Financial Accounting Standards (SFAS) No. 123 (Revised 2004), “Share-Based Payment”.

 

Ernst & Young LLP

 

Boston, Massachusetts

March 13, 2008

OXiGENE, Inc.

 

Balance Sheets

All Amounts in thousands

except per share amounts

 

 

See accompanying notes.

OXiGENE, Inc.

 

Statements of Operations

(All amounts in thousands,

except per share amounts)

 

 

See accompanying notes.

OXiGENE, Inc.

 

Statements of Stockholders’ Equity

(All amounts in thousands)