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Filed Pursuant to Rule 424(b)(4)
Registration No. 333-91747
PROSPECTUS
3,500,000 SHARES
ANTIGENICS INC. [ANTIGENICS INC. LOGO]
COMMON STOCK
$18.00 PER SHARE
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- - This is a firm commitment initial public offering and no public market
currently exists for our shares.
- - Trading symbol: Nasdaq
National Market - AGEN
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THIS INVESTMENT INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 8.
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PER SHARE TOTAL
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Public offering price....................................... $18.00 $63,000,000
Underwriting discount....................................... $ 1.26 $ 4,410,000
Proceeds to Antigenics...................................... $16.74 $58,590,000
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The underwriters have a 30-day option to purchase up to 525,000 additional
shares of common stock from us to cover over-allotments, if any.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
U.S. BANCORP PIPER JAFFRAY ROBERTSON STEPHENS
THE DATE OF THIS PROSPECTUS IS FEBRUARY 3, 2000.
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[Antigenics Logo]
- - Technology platform broadly applicable to cancer, infectious diseases and
autoimmune disorders
- - Evaluating lead product, Oncophage(R), in multiple phase II clinical trials
including kidney cancer, melanoma and colorectal cancer
- - Phase III clinical trial to commence in mid-2000
- - Lead infectious disease products in preclinical testing for genital herpes
- - Commercial scale manufacturing capacity in place
- - Nine issued United States patents cover use of our technology in treatment of
cancer, infectious diseases and autoimmune diseases
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Clinical
Personalized Medicine Product Indication Research Preclinical Phase I/II Phase II
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CANCER
Oncophage(R) Kidney Cancer .............................................
Melanoma .........................................
Colorectal Cancer ...........................................
Gastric Cancer ...............................
Pancreatic Cancer .....................................
[Photo of vial] NHL ..........................
Sarcoma ..........................
HSPPC-70-C Various Cancers ..........
HSPPC-90-C Various Cancers ..........
HSPPC-56-C Various Cancers ..........
INFECTIOUS
DISEASES
HSPPC-96-GH Genital Herpes ...................
HSPPC-70-GH Genital Herpes ...................
HSPPC-56-I Various Infectious Diseases ..........
HSPPC-70-I Various Infectious Diseases ..........
AUTOIMMUNE
DISORDERS
gp96 Type 1 Diabetes ..........
Multiple Sclerosis ..........
[ANTIGENICS
LOGO]
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</TABLE>
[PHOTO OF OUTSIDE OF BUILDING]
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TABLE OF CONTENTS
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PAGE
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Summary..................................................... 4
Risk Factors................................................ 8
History of Antigenics....................................... 19
Use of Proceeds............................................. 20
Recent Financing............................................ 20
Dividend Policy............................................. 20
Forward-Looking Statements.................................. 21
Capitalization.............................................. 22
Dilution.................................................... 23
Selected Consolidated Financial Data........................ 24
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 26
Business.................................................... 31
Management.................................................. 49
Certain Relationships and Related Transactions.............. 55
Principal Stockholders...................................... 56
Description of Capital Stock................................ 58
Shares Eligible For Future Sale............................. 60
Underwriting................................................ 62
Legal Matters............................................... 64
Experts..................................................... 64
Where You Can Find More Information......................... 64
Index To Consolidated Financial Statements.................. F-1
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SUMMARY
We describe the items in the following summary in more detail later in this
prospectus. This summary provides an overview of selected information and does
not contain all the information you should consider. Therefore, you should also
read the more detailed information set out in this prospectus, including the
financial information. We present information in this prospectus, except in the
consolidated financial statements or where we otherwise specify, to give effect
to our change from a limited liability company to a corporation which will occur
concurrently with the closing of this offering. In addition, except where we
indicate otherwise, we present information in this prospectus assuming that the
underwriters do not exercise their over-allotment option.
BUSINESS OF ANTIGENICS
Antigenics is engaged in the discovery and development of a family of novel
immunotherapeutics for the treatment of life threatening and chronic medical
conditions. Immunotherapeutics are drugs that work by modulating the immune
system to fight disease. We are currently evaluating our lead immunotherapeutic,
Oncophage, in six separate phase II or phase I/II clinical trials in four
different cancers, and we expect to start a pivotal phase III trial by mid-2000.
We are also developing immunotherapeutics to treat infectious diseases, such as
genital herpes, and autoimmune disorders, such as diabetes and multiple
sclerosis. Based upon our scientific and drug development skills, our technology
platform and our strategic expertise, we intend to become a leader in drug
discovery, development and commercialization.
Our immunotherapeutics are based on a specific class of proteins known as heat
shock proteins. Heat shock proteins are present in all cells throughout the body
and published research suggests that they play a central role in the generation
of immune responses. Inside cells, heat shock proteins naturally bind to protein
fragments called peptides. We refer to these combinations of heat shock proteins
and peptides as heat shock protein-peptide complexes. These complexes are our
immunotherapeutics. We believe that our immunotherapeutics elicit a powerful
immune response that is capable of systemically targeting and killing cancers or
other diseased cells from which the specific heat shock proteins originate.
We believe our heat shock protein technology is applicable to the treatment of a
wide variety of diseases. Each of our immunotherapeutics includes a heat shock
protein that is constant and a repertoire of peptides that varies depending on
the target disease. For a disease such as cancer, which varies among
individuals, we derive heat shock protein-peptide complexes from a patient's own
cancer and therefore our cancer immunotherapeutics are patient-specific, or
autologous. For each infectious disease, which is generally caused by a common
pathogen such as a virus or bacterium, we intend to produce a disease-specific
immunotherapeutic using that same common pathogen. In a wide range of
preclinical studies, we have shown that our immunotherapeutics stimulate the
immune system to target and destroy diseased cells. In addition, over one dozen
scientific institutions world-wide have independently confirmed various aspects
of our technology platform.
Our lead immunotherapeutic, Oncophage, consists of purified, patient-specific
heat shock protein-peptide complexes. The manufacturing process for Oncophage
begins when a surgeon removes a patient's tumor and ships it frozen by overnight
courier to our manufacturing facility. Using our proprietary methods, we purify
Oncophage from the tumor tissue in a process that takes less than ten hours. We
then ship Oncophage frozen to the hospital for administration to the patient.
Four to six weeks after surgery, a doctor or nurse injects Oncophage into the
patient. The typical course of treatment involves a series of injections into
the skin once per week for four to six weeks.
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To date, we have treated approximately 160 advanced stage cancer patients with
Oncophage in our clinical trial programs. We have initially targeted cancers for
which there are limited or no treatment alternatives and cancers and stages of
disease that involve tumors that a doctor can surgically remove. Further, we
have targeted cancers and stages of disease which allow us to evaluate our
immunotherapeutics in clinical trials with near term endpoints. This should
permit us to rapidly and efficiently complete clinical trials and submit
regulatory filings. We are currently conducting separate phase II or phase I/II
clinical trials with Oncophage for the treatment of:
- renal cell carcinoma, a type of kidney cancer;
- metastatic melanoma, a type of skin cancer;
- colorectal cancer, or cancer of the colon and rectum; and
- gastric cancer, or stomach cancer.
In addition, we are planning to start separate phase II clinical trials
evaluating Oncophage as a treatment for sarcoma, a type of soft tissue cancer,
and non-Hodgkin's lymphoma, a type of cancer that originates in the lymph
tissue. We also expect to begin a pivotal phase III trial for Oncophage as a
treatment for renal cell carcinoma by mid-2000.
Preliminary results from our completed and ongoing clinical trials indicate that
Oncophage is generally safe and well tolerated. These results also demonstrate
preliminary indications of clinical benefit in a number of patients. For
example, in our renal cell carcinoma clinical trial, Oncophage has achieved a
response rate, a common measure of clinical benefit, comparable to that of the
existing approved treatment without the significant side effects associated with
that treatment. We have also shown that in all patients who responded
clinically, the number of immune cells increased after treatment with Oncophage.
Moreover, we have shown that we can manufacture Oncophage consistently and in
sufficient quantities from most tumor types.
In addition to cancer, we believe our immunotherapeutics may be effective in
treating various infectious diseases and autoimmune disorders. Our
immunotherapeutics for treating infectious diseases will consist of heat shock
proteins bound to peptides that are produced by disease-causing pathogens. Our
first infectious disease immunotherapeutic is intended for the treatment of
genital herpes. We anticipate filing an Investigational New Drug Application, or
IND, with the United States Food and Drug Administration, or FDA, for our
immunotherapeutic for genital herpes in 2000.
We are also researching the applicability of heat shock proteins to treat
autoimmune disorders like diabetes and multiple sclerosis. We have demonstrated
in a number of animal models that heat shock proteins administered in high doses
can turn off the misguided immune responses responsible for several autoimmune
disorders.
OFFICE LOCATION
We maintain our principal operations in Woburn, Massachusetts and our executive
offices in New York, New York. The address for our executive offices is 630
Fifth Avenue, Suite 2100, New York, New York 10111 and our telephone number is
(212) 332-4774.
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THE OFFERING
Common stock offered................ 3,500,000 shares
Common stock outstanding after this
offering............................ 24,215,973 shares. This number
excludes 1,696,423 shares of common
stock issuable upon exercise of
options outstanding at December 31,
1999, with a weighted average
exercise price of $5.89 per share and
280,886 shares issuable upon exercise
of warrants outstanding at December
31, 1999, with an exercise price of
$13.96 per share.
Offering price...................... $18.00 per share
Use of proceeds..................... To fund clinical trials; to fund
research and development of our
immunotherapeutics; to increase our
manufacturing capacity; and for
general corporate purposes.
You should read our discussion under
"Use of Proceeds."
Nasdaq National Market symbol....... AGEN
CORPORATE BACKGROUND AND MERGER
We formed our business in March 1994. We currently operate as a limited
liability company, Antigenics L.L.C. Concurrently with the completion of this
offering, Antigenics L.L.C. will change its structure from a limited liability
company to a corporation. This change will occur when we merge Antigenics L.L.C.
with and into Antigenics Inc., a newly formed Delaware corporation. In the
merger, equity holders, or members, of Antigenics L.L.C. will exchange
membership units, options and warrants in Antigenics L.L.C. for shares of
Antigenics Inc. common stock and options and warrants exercisable for shares of
Antigenics Inc. common stock.
This prospectus contains our trademark, Oncophage(R). Each trademark, trade name
or service mark of any other company appearing in this prospectus belongs to its
holder.
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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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PERIOD FROM
MARCH 31, 1994
(DATE OF
YEAR ENDED DECEMBER 31, INCEPTION) TO
----------------------------------------------------- DECEMBER 31,
1995 1996 1997 1998 1999 1999
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CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenue............................... $ -- $ -- $ -- $ -- $ -- $ --
Operating expenses:
Research and development........... (742) (2,017) (2,563) (6,102) (10,977) (22,514)
General and administrative......... (2,453) (1,781) (1,549) (3,178) (6,875) (15,890)
Depreciation and amortization...... (40) (79) (202) (360) (1,005) (1,702)
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Loss from operations.................. (3,235) (3,877) (4,314) (9,640) (18,857) (40,106)
Interest income, net.................. 8 281 481 736 723 2,229
Non-operating income.................. -- 250 -- -- 10 260
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Net loss(1)........................... $(3,227) $(3,346) $(3,833) $(8,904) $(18,124) $(37,617)
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UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS DATA:
Pro forma net loss(2)................. $(18,124)
Pro forma net loss per common share,
basic and diluted(2)............... $ (1.00)
Pro forma weighted average shares
outstanding, basic and
diluted(2)......................... 18,144
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AS OF
AS OF DECEMBER 31, DECEMBER 31, 1999
----------------------------- PRO FORMA,
1997 1998 1999 AS ADJUSTED(3)
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(UNAUDITED)
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.......................... $13,086 $22,168 $46,418 $104,520
Total current assets............................... 13,246 22,447 47,672 105,215
Total assets....................................... 14,090 26,636 56,004 113,547
Total current liabilities.......................... 878 2,285 2,171 1,974
Long-term liabilities, less current portion........ -- 709 2,155 2,155
Members' equity/stockholders' equity............... 13,212 23,641 51,678 109,418
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(1)Since we have operated historically as a limited liability company, in
accordance with federal, state and local income tax regulations which provide
that no income taxes are levied on United States limited liability companies
and each member of the company is individually responsible for reporting the
member's share of our net income or loss, we have not provided for income
taxes in our consolidated financial statements.
(2)The unaudited pro forma consolidated statement of operations data give effect
to the change from a limited liability company to a corporation as though
this event occurred as of January 1, 1999. Each unit of members' equity
outstanding will be exchanged for 172.0336 shares of common stock. The
unaudited pro forma consolidated statement of operations data are unaudited
and reflect adjustments which are necessary, in our management's opinion, for
a fair presentation of our consolidated results of operations on a pro forma
basis. The number of pro forma weighted average shares outstanding used for
computing pro forma diluted loss per common share is the same as that used
for computing pro forma basic loss per common share because our options and
warrants are not included in the calculation since the inclusion of such
potential common shares would be antidilutive.
(3)The pro forma, as adjusted consolidated balance sheet data give effect to the
unaudited pro forma adjustments as described in footnote (2) and are adjusted
to reflect the issuance of 3,500,000 shares of common stock in this offering,
after deducting our estimated offering expenses and the underwriting
discount, as though these events occurred as of December 31, 1999.
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RISK FACTORS
You should carefully consider the following risk factors before you decide to
buy our common stock. If any of these risks actually occur, our business,
financial condition, operating results or cash flows could be materially
adversely affected. This could cause the trading price of our common stock to
decline, and you may lose part or all of your investment.
RISKS RELATED TO OUR BUSINESS
WE DO NOT CURRENTLY GENERATE ANY REVENUE, AND WE CANNOT GUARANTEE THAT WE WILL
EVER COMMERCIALIZE ANY OF OUR IMMUNOTHERAPEUTICS AND GENERATE REVENUE IN THE
FUTURE.
WE MUST RECEIVE SEPARATE REGULATORY APPROVAL FOR EACH OF OUR
IMMUNOTHERAPEUTICS IN EACH INDICATION BEFORE WE CAN SELL THEM COMMERCIALLY IN
THE UNITED STATES OR INTERNATIONALLY.
To obtain regulatory approvals, we must, among other requirements, complete
clinical trials demonstrating that a particular immunotherapeutic is safe and
effective. Because Oncophage is our only immunotherapeutic in clinical trials,
any delays or difficulties we encounter in these clinical trials may have a
significant adverse impact on our operations and cause our stock price to
decline significantly. We have limited clinical data. Future clinical trials may
not show that Oncophage is safe and effective. In addition, we or the FDA might
delay or halt our clinical trials of Oncophage for various reasons, including:
- Oncophage may not appear to be more effective than current
therapies;
- Oncophage may have unforeseen adverse side effects;
- the time required to determine whether Oncophage is effective may be
longer than expected;
- patients may die during a clinical trial because their disease is
too advanced or because they experience medical problems that may
not be related to Oncophage;
- sufficient number of patients may not enroll in the trials; or
- we may not be able to produce sufficient quantities of Oncophage to
complete the trials.
We rely on third party clinical investigators to conduct our clinical trials. As
a result, we may encounter delays outside of our control.
The process of obtaining and maintaining regulatory approvals for new
therapeutic products is lengthy, expensive and uncertain. It also can vary
substantially, based on the type, complexity and novelty of the product
involved. To date, the FDA and foreign regulatory agencies have approved only a
limited number of cancer immunotherapeutics for commercial sale. Furthermore,
the FDA and foreign regulatory agencies have relatively little experience with
autologous therapies. This lack of experience may lengthen the regulatory review
process for Oncophage, increase our development costs and delay or prevent
commercialization. In addition, problems encountered with other companies'
immunotherapeutic products may slow the regulatory review of our
immunotherapeutics. The FDA may not consider Oncophage to be an appropriate
candidate for fast track designation should we choose to seek it. Accordingly,
Oncophage or any of our other future drug candidates could take a significantly
longer time to gain regulatory approval than we expect or may never gain
approval.
BECAUSE DEVELOPMENT OF OUR IMMUNOTHERAPEUTICS FOR INFECTIOUS DISEASES AND
AUTOIMMUNE DISORDERS WILL INVOLVE A LENGTHY AND COMPLEX PROCESS, WE ARE NOT
CERTAIN WE WILL BE ABLE TO DEVELOP ANY MARKETABLE IMMUNOTHERAPEUTICS FOR THESE
INDICATIONS.
We have not completed the preclinical development of our immunotherapeutics for
any infectious disease or autoimmune disorder. We will need to conduct extensive
additional research and preclinical and clinical testing of these
immunotherapeutics prior to commercialization. This development process takes
several years and often fails to yield commercial products. Regulatory
authorities may not permit human testing of
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these immunotherapeutics and, even if they permit human testing, we may not
demonstrate that an immunotherapeutic is safe and effective.
EVEN IF SOME OF OUR IMMUNOTHERAPEUTICS RECEIVE REGULATORY APPROVAL, THOSE
IMMUNOTHERAPEUTICS MAY STILL FACE SUBSEQUENT REGULATORY DIFFICULTIES.
If we receive regulatory approval to sell any of our immunotherapeutics, the FDA
or a comparable foreign regulatory agency may, nevertheless, limit the
categories of patients who can use that immunotherapeutic. In addition,
regulatory agencies subject a marketed product, its manufacturer and the
manufacturer's facilities to continual review and periodic inspections.
Furthermore, the FDA or foreign regulatory agencies may require expensive
post-approval trials. If we discover previously unknown problems with a product
or our manufacturing and laboratory facility, a regulatory agency may impose
restrictions on that product or on us, including requiring us to withdraw the
product from the market. If we fail to comply with applicable regulatory
approval requirements, a regulatory agency may:
- send us warning letters;
- impose fines and other civil penalties on us;
- suspend our regulatory approvals;
- refuse to approve pending applications or supplements to approved
applications filed by us;
- refuse to permit exports of our products from the United States;
- require us to recall products;
- seize our products;
- impose restrictions on our operations; or
- criminally prosecute us.
WE MAY ENCOUNTER MANUFACTURING PROBLEMS THAT LIMIT OUR ABILITY TO SUCCESSFULLY
COMMERCIALIZE OUR IMMUNOTHERAPEUTICS.
IF WE ARE UNABLE TO PURIFY HEAT SHOCK PROTEINS FROM SOME CANCER TYPES, THE
SIZE OF OUR POTENTIAL MARKET WOULD DECREASE.
Our ability to successfully commercialize an immunotherapeutic for a particular
cancer type depends on our ability to purify heat shock proteins from that type
of cancer. Based on our clinical trials conducted to date, in renal cell
carcinoma, we have been able to manufacture Oncophage from 98% of the tumors
delivered to our manufacturing facility; for melanoma, 90%; for colorectal
carcinoma, 100%; for gastric cancer, 71%; and for pancreatic cancer, 30%. The
relatively low rate for pancreatic cancer is due to the abundance of proteases
in pancreatic tissue. Proteases are enzymes that break down proteins. These
proteases degrade the heat shock proteins during the purification process. We
may encounter this problem or similar problems with other types of cancers as we
expand our research. If we cannot overcome these problems, the number of cancer
types that our immunotherapeutics could treat would be limited.
DELAYS IN OBTAINING REGULATORY APPROVAL OF OUR MANUFACTURING FACILITY AND
DISRUPTIONS IN OUR MANUFACTURING PROCESS MAY DELAY OR DISRUPT OUR
COMMERCIALIZATION EFFORTS.
Before we can begin commercially manufacturing our immunotherapeutics, we must
obtain regulatory approval of our manufacturing facility and process.
Manufacturing of our immunotherapeutics must comply with the FDA's current Good
Manufacturing Practices requirements, commonly known as cGMP, and foreign
regulatory requirements. The cGMP requirements govern quality control and
documentation
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policies and procedures. In complying with cGMP and foreign regulatory
requirements, we will be obligated to expend time, money and effort in
production, recordkeeping and quality control to assure that the product meets
applicable specifications and other requirements. If we fail to comply with
these requirements, we would be subject to possible regulatory action and may be
limited in the jurisdictions in which we are permitted to sell our
immunotherapeutics.
We recently transferred the manufacturing of Oncophage from our facility in
Framingham, Massachusetts to our new facility in Woburn, Massachusetts. We have
limited manufacturing experience in this facility and unforeseen circumstances
may cause delays or disruptions in our manufacturing process. The FDA, The
Commonwealth of Massachusetts and foreign regulatory authorities have the
authority to continuously inspect this facility. Preparing this facility for
commercial manufacturing may take longer than planned and the costs of complying
with FDA regulations may be higher than those which we have budgeted. In
addition, any material changes we make to the manufacturing process may require
approval by the FDA, The Commonwealth of Massachusetts or foreign regulatory
authorities. It could take longer than we expect for us to obtain these
approvals. Any delays in obtaining these approvals could disrupt our
manufacturing process.
We are the only manufacturer of our immunotherapeutics. For the next several
years, we expect that we will conduct all of our manufacturing in our facility
in Woburn, Massachusetts. If this facility or the equipment in the facility is
significantly damaged or destroyed, we will not be able to quickly or
inexpensively replace our manufacturing capacity. Due to the nature of our
immunotherapeutics, a third party may not be able to manufacture our
immunotherapeutics.
We have no experience manufacturing Oncophage in the volumes that will be
necessary to support large clinical trials or commercial sales. Our present
manufacturing process may not meet our initial expectations as to:
- scheduling;
- reproducibility;
- yield;
- purity;
- cost;
- potency;
- quality; and
- other measurements of performance.
In addition, we have not demonstrated the ability to manufacture our
immunotherapeutics other than Oncophage in quantities sufficient for any
clinical trials.
IF WE ARE UNABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY, TRADE SECRETS OR
KNOW-HOW, WE MAY NOT BE ABLE TO OPERATE OUR BUSINESS PROFITABLY.
IF WE FAIL TO SUSTAIN AND FURTHER BUILD OUR INTELLECTUAL PROPERTY RIGHTS,
COMPETITORS WILL BE ABLE TO TAKE ADVANTAGE OF OUR RESEARCH AND DEVELOPMENT
EFFORTS TO DEVELOP COMPETING THERAPIES.
Our success depends, in part, on our ability to maintain protection for our
products and technologies under the patent laws of the United States and other
countries, so that we can stop others from using our inventions. Our success
also will depend on our ability to prevent others from using our trade secrets.
In addition, we must operate in a way that does not infringe, or violate, the
intellectual property rights of others.
We have exclusive rights to 11 issued U.S. patents, and foreign counterpart
patents and patent applications, relating to our heat shock protein technology.
Our rights to these patents are as a result of an
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exclusive worldwide license with Fordham University and one with Mount Sinai
School of Medicine of New York University. In addition, we have licensed or
optioned rights to 47 pending U.S. patent applications and foreign counterpart
patents and patent applications. The standards which the U.S. Patent and
Trademark Office uses to grant patents are not always applied predictably or
uniformly and can change. Consequently, we cannot be certain as to the type and
extent of patent claims that will be issued to us in the future. Any patents
which are issued may not contain claims which will permit us to stop competitors
from using similar technology. The standards which courts use to interpret
patents are not always applied predictably or uniformly and can change,
particularly as new technologies develop. Consequently, we cannot be certain as
to how much protection, if any, will be given to our patents, if we attempt to
enforce them and they are challenged in court. If we choose to go to court to
stop someone else from using the inventions claimed in our patents, that
individual or company has the right to ask the court to rule that our patents
are invalid and should not be enforced against them. These lawsuits are
expensive and would consume time and other resources, even if we were successful
in stopping the violation of our patents. In addition, there is a risk that the
court will decide that our patents are not valid and that we do not have the
right to stop the other party from using the inventions. There is also the risk
that, even if the validity of our patents were upheld, the court will refuse to
stop the other party on the ground that its activities are not covered by, that
is, do not infringe, our patents.
Furthermore, a third party may claim that we are using inventions covered by
their patents and may go to court to stop us from engaging in our normal
operations and activities. Such lawsuits are expensive and would consume time
and other resources. There is a risk that a court would decide that we are
violating the third party's patents and would order us to stop the activities
covered by the patents. In addition, there is a risk that a court will order us
to pay the other party's damages for having violated their patents.
We rely on certain proprietary trade secrets and know-how that are not
patentable. We have taken measures to protect our unpatented trade secrets and
know-how, including the use of confidentiality agreements with our employees,
consultants and certain contractors. It is possible, however, that:
- these persons will breach the agreements;
- we would have inadequate remedies for any breach; or
- our competitors will independently develop or otherwise discover our
trade secrets.
WE MAY INCUR SUBSTANTIAL COSTS AS A RESULT OF LITIGATION OR OTHER PROCEEDINGS
RELATING TO PATENT AND OTHER INTELLECTUAL PROPERTY RIGHTS.
The cost to us of any litigation or other proceeding relating to intellectual
property rights, even if resolved in our favor, could be substantial. Some of
our competitors may be able to sustain the costs of complex patent litigation
more effectively than we can because they have substantially greater resources.
Uncertainties resulting from the initiation and continuation of any litigation
could have a material adverse effect on our ability to continue our operations.
Should third parties file patent applications, or be issued patents claiming
technology also claimed by us in pending applications, we may be required to
participate in interference proceedings in the United States Patent and
Trademark Office to determine priority of invention. We, or our licensors, may
also need to participate in interference proceedings involving our issued
patents and pending applications of another entity. An unfavorable outcome in an
interference proceeding could require us to cease using the technology or to
license rights from prevailing third parties. There is no guarantee that any
prevailing party would offer us a license or that we could acquire any license
made available to us on commercially acceptable terms.
We cannot guarantee that the practice of our technologies will not conflict with
the rights of others. We are aware of a United States patent, issued to a third
party, with claims directed to certain heat shock protein based
immunotherapeutics and their use in the field of tissue grafting. We do not
believe that our products or activities are infringing any valid claims of this
patent. We also are aware of two United States
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patents, issued to a different third party, with claims directed to certain
methods of making heat shock protein products and related apparatuses. These
patents do not claim any therapeutic applications. These patents also do not
claim any of the methods we presently use to make Oncophage. Moreover, we do not
believe that our methods of producing any of our heat shock protein-based
immunotherapeutics would infringe any valid claim of either of these patents.
However, we cannot guarantee that this third party, or any other third party,
will not sue us for infringing these, or any other, patents. One of the patent
applications licensed to us contains claims which are substantially the same as
claims in one of this third party's patents. Therefore, there is a possibility
that the U.S. Patent and Trademark Office will declare an interference
proceeding between one or both of this third party's patents and our patent
application. In an interference proceeding, the party with the earliest
effective filing date has certain advantages. We believe that our claims have an
earlier effective filing date than the claims of the other patents. However, we
cannot guarantee that we would prevail in any interference proceeding. In the
past and again recently, this third party has contacted us about licensing
patents, but we have not yet responded to the recent inquiry.
In some foreign jurisdictions, we could become involved in opposition
proceedings, either by opposing the validity of another's foreign patent or by
third parties opposing the validity of our foreign patents. In 1995, the
European Patent Office issued a European patent, with claims directed to the use
of heat shock proteins to produce or enhance immune responses to cancer and
infectious diseases, to the Whitehead Institute for Biomedical Research and to
the Medical Research Council. This patent is exclusively licensed to StressGen
Biotechnologies Corporation. The patent holders have made no attempt to enforce
this patent against us. Nonetheless, we are seeking to have this patent revoked
in its entirety in an opposition proceeding in the European Patent Office. The
European Patent Office has issued a provisional, non-binding opinion that this
patent should be revoked in its entirety. The patent owners, in response,
amended the patent claims to exclude autologous treatment of tumors. We then
argued that this third party patent still should be revoked in its entirety.
Even if the European Patent Office changes its position and the patent is
maintained with the amended claims, we still should be free to practice our
autologous cancer business in Europe. However, the patent owners or their
licensee might try to enforce the amended patent against our infectious disease
business in Europe. We or the holders of this patent may appeal any decision to
revoke the patent in its entirety, or to maintain the patent in any form. We may
not obtain a final, non-appealable decision for several years, during which
time, the patent, with any amendments made during the opposition proceedings,
remains enforceable. We may incur significant costs by participating in the
opposition proceedings and any appeals. Furthermore, if we are sued on this
patent in Europe prior to any final decision of revocation, we may incur
significant costs defending ourselves, even if we ultimately succeed in proving
that we do not infringe any valid claims of this patent.
This European patent claims priority to a United States patent application filed
in 1988. We do not know whether this application, or any related application, is
still pending. We do not believe that any United States patent has issued from
this application, and we do not know whether a United States patent will ever
issue from this patent application. If a United States patent does issue, we do
not know whether the patent will be enforceable, whether any valid claims will
cover our activities or products, or whether the patent owner will attempt to
assert the patent against us.
Earlier this year, we received correspondence from both Copernicus Therapeutics,
Inc. and its counsel alleging similarity between the companies' respective logos
and demanding that we cease using our logo. In July 1999, we sent a response to
Copernicus stating that we have prior rights in our logo. In the response to
Copernicus, we also stated that since the respective corporate names are vastly
different, both companies should be able to continue the use of their respective
logos without causing public confusion. At this time, we have not received any
further communications from Copernicus or its counsel. Although we do not
believe we are infringing any rights owned by Copernicus, Copernicus may proceed
with a trademark lawsuit against us.
12
<PAGE> 13
WE ARE AN EARLY STAGE BIOTECHNOLOGY COMPANY THAT MAY NEVER BE PROFITABLE.
IF WE INCUR OPERATING LOSSES FOR LONGER THAN WE EXPECT, WE MAY BE UNABLE TO
CONTINUE OUR OPERATIONS.
We have not generated any revenues from sales, and we do not expect to generate
significant revenues for several years. We have incurred losses since we were
formed. From inception through December 31, 1999, we have generated losses
totaling $37.6 million. We expect to incur increasing and significant losses
over the next several years as we complete our Oncophage clinical trials, apply
for regulatory approvals, continue development of our technology and expand our
operations.
Our profitability will depend on the market acceptance of any of our
immunotherapeutics that receive FDA or foreign regulatory approval. The
commercial success of any of our immunotherapeutics will depend on whether:
- the immunotherapeutic is more effective than alternative treatments;
- side effects of the immunotherapeutic are acceptable to doctors and
patients;
- we produce the immunotherapeutic at a competitive price;
- we obtain sufficient reimbursement for the immunotherapeutic; and
- we have sufficient capital to market the immunotherapeutic
effectively.
Because Oncophage is autologous, or patient specific, it may be more expensive
to manufacture than conventional therapeutic products. This increased expense
may decrease our profit margins. Furthermore, because our autologous products
are novel, some doctors and patients may be reluctant to use them.
IF WE FAIL TO OBTAIN THE CAPITAL NECESSARY TO FUND OUR OPERATIONS, WE WILL BE
UNABLE TO ADVANCE OUR DEVELOPMENT PROGRAMS AND COMPLETE OUR CLINICAL TRIALS.
Developing immunotherapeutics and conducting clinical trials for multiple
diseases is expensive. We plan to conduct clinical trials for many different
cancer types simultaneously, which will increase our costs. We will need to
raise additional capital:
- to fund operations;
- to continue the research and development of our immunotherapeutics;
and
- to commercialize our immunotherapeutics.
Additional financing may not be available on favorable terms or at all. If we
are unable to raise additional funds when we need them, we may be required to
delay, reduce or eliminate some or all of our development programs and some or
all of our clinical trials. We also may be forced to license technologies to
others that we would prefer to develop internally.
On December 31, 1999, we had $46.4 million in cash and cash equivalents. We
believe that, after this offering, we will have sufficient capital to fund our
operations for the next two years. We may need to raise capital sooner, however,
due to a number of factors, including:
- an acceleration of the number, size or complexity of our clinical
trials;
- slower than expected progress in developing our immunotherapeutics;
- higher than expected costs to obtain regulatory approvals;
- higher than expected costs to pursue our intellectual property
strategy;
- higher than expected costs to further develop our manufacturing
capability; and
- higher than expected costs to develop our sales and marketing
capability.
13
<PAGE> 14
BECAUSE OF THE SPECIALIZED NATURE OF OUR BUSINESS, THE TERMINATION OF
RELATIONSHIPS WITH OUR SCIENTIFIC ADVISORS OR THE DEPARTURE OF KEY MEMBERS OF
MANAGEMENT MAY PREVENT US FROM ACHIEVING OUR OBJECTIVES.
IF PRAMOD K. SRIVASTAVA, PH.D. SEVERS HIS RELATIONSHIP WITH ANTIGENICS, WE MAY
EXPERIENCE SIGNIFICANT DIFFICULTIES IN OUR FUTURE DEVELOPMENT EFFORTS.
Since our formation, Dr. Srivastava has played a significant role in our
research efforts. Dr. Srivastava is a director of our company and acts as
chairman of our scientific advisory board. In addition, we have licensed nearly
all of our intellectual property from institutions at which Dr. Srivastava has
worked. We sponsor research in Dr. Srivastava's laboratory at the University of
Connecticut Health Center in exchange for the right to license discoveries made
in that laboratory with our funding. Dr. Srivastava is a member of the faculty
of the University of Connecticut School of Medicine. The regulations and
policies of the University of Connecticut Health Center govern the relationship
between a faculty member and a commercial enterprise. These regulations and
policies prohibit Dr. Srivastava from becoming an employee of Antigenics.
Furthermore, the University of Connecticut may modify these regulations and
policies in the future to further limit Dr. Srivastava's relationship with us.
While Dr. Srivastava has a consulting agreement with us, which includes
financial incentives for him to remain associated with us, we cannot guarantee
that he will remain associated with us even during the time covered by the
consulting agreement. In addition, this agreement does not restrict his ability
to compete with us after his association is terminated.
IF WE FAIL TO KEEP KEY MANAGEMENT AND SCIENTIFIC PERSONNEL, WE MAY BE UNABLE
TO SUCCESSFULLY DEVELOP OUR IMMUNOTHERAPEUTICS, CONDUCT CLINICAL TRIALS AND
OBTAIN FINANCING.
We are highly dependent on our senior management and scientific staff,
particularly Garo H. Armen, Ph.D., our chairman and chief executive officer, and
Gamil G. de Chadarevian, our vice chairman and executive vice president,
international. The competition for qualified personnel in the biotechnology
field is intense, and we rely heavily on our ability to attract and retain
qualified scientific, technical and managerial personnel. Since our
manufacturing process is unique, our manufacturing and quality control personnel
are also very important.
THE COMMERCIAL SUCCESS OF ANY OF OUR IMMUNOTHERAPEUTICS WILL DEPEND UPON THE
STRENGTH OF OUR SALES AND MARKETING EFFORT AND THE AVAILABILITY OF THIRD PARTY
REIMBURSEMENT.
IF WE ARE UNABLE TO ESTABLISH SALES AND MARKETING CAPABILITIES OR ENTER INTO
AGREEMENTS WITH PHARMACEUTICAL COMPANIES TO SELL AND MARKET OUR
IMMUNOTHERAPEUTICS, WE MAY EXPERIENCE DIFFICULTY GENERATING REVENUES.
We do not have a sales organization and have no experience in the sales,
marketing and distribution of pharmaceutical products. If Oncophage is approved
for commercial sale, we plan to market it in the United States with our own
sales force. Developing a sales force is expensive and time consuming and could
delay any product launch. We cannot be certain that we would be able to develop
this capacity. If we are unable to establish our sales and marketing capability,
we will need to enter into sales and marketing agreements to market Oncophage in
the United States. We plan to enter into these types of arrangements for sales
outside the United States. If we are unable to establish successful distribution
relationships with pharmaceutical companies, we may fail to realize the full
sales potential of our immunotherapeutics.
IF WE FAIL TO OBTAIN ADEQUATE LEVELS OF REIMBURSEMENT FOR OUR
IMMUNOTHERAPEUTICS FROM THIRD PARTY PAYORS, THE COMMERCIAL POTENTIAL OF OUR
IMMUNOTHERAPEUTICS WILL BE SIGNIFICANTLY LIMITED.
Our profitability will depend on the extent to which government administration
authorities, private health insurance providers and other organizations provide
reimbursement for the cost of our immunotherapeutics. Many patients will not be
capable of paying for our immunotherapeutics themselves. A primary trend in the
United States health care industry is toward cost containment. Large private
payors, managed care
14
<PAGE> 15
organizations, group purchasing organizations and similar organizations are
exerting increasing influence on decisions regarding the use of particular
treatments. These organizations are becoming increasingly economically focused.
Furthermore, many third party payors limit reimbursement for newly approved
health care products. Cost containment measures may prevent us from becoming
profitable.
In addition, healthcare reform is an area of significant government focus. Any
reform measures, if adopted, could adversely affect:
- the pricing of immunotherapeutics in the United States or
internationally; and
- the amount of reimbursement available from governmental agencies or
other third party payors.
For example, recent proposals regarding Medicare coverage, if they take effect,
may put novel cancer therapies like Oncophage at a competitive disadvantage
compared to existing therapies.
PRODUCT LIABILITY AND OTHER CLAIMS AGAINST US MAY REDUCE DEMAND FOR OUR PRODUCTS
OR RESULT IN SUBSTANTIAL DAMAGES.
We face an inherent risk of product liability exposure related to testing
immunotherapeutics in human clinical trials and will face an even greater risk
if we sell any of our therapeutic products commercially. An individual may bring
a product liability claim against us if one of our immunotherapeutics causes, or
merely appears to have caused, an injury. Regardless of merit or eventual
outcome, product liability claims may result in:
- decreased demand for our immunotherapeutics;
- injury to our reputation;
- withdrawal of clinical trial volunteers;
- costs of related litigation; and
- substantial monetary awards to plaintiffs.
We manufacture Oncophage from a patient's tumor, and a medical professional must
inject the Oncophage into that same patient. A patient may sue us if we, a
hospital or a delivery company fail to deliver the removed tumor or that
patient's Oncophage. We anticipate that the logistics of shipping will become
more complex as the number of patients we treat increases, and we cannot assure
that all shipments will be made without incident. In addition, administration of
Oncophage at a hospital poses another chance for delivery to the wrong patient.
Currently, we do not have insurance that covers loss of or damage to Oncophage
and do not know whether insurance will be available to us at a reasonable price
or at all.
WE MAY INCUR SIGNIFICANT COSTS COMPLYING WITH ENVIRONMENTAL LAWS AND
REGULATIONS.
We use hazardous, infectious and radioactive materials that could be dangerous
to human health, safety or the environment. As appropriate, we store these
materials and various wastes resulting from their use at our facility pending
ultimate use and disposal. We are subject to a variety of federal, state and
local laws and regulations governing the use, generation, manufacture, storage,
handling and disposal of these materials and wastes resulting from their use. We
may incur significant costs complying with both existing and future
environmental laws and regulations. In particular, we are subject to regulation
by the Occupational Safety and Health Administration and the Environmental
Protection Agency and to regulation under the Toxic Substances Control Act and
the Resource Conservation and Recovery Act. OSHA or the EPA may adopt
regulations that may affect our research and development programs. We are unable
to predict whether any agency will adopt any regulations which could have a
material adverse effect on our operations.
15
<PAGE> 16
Although we believe our safety procedures for handling and disposing of these
materials comply with federal, state and local laws and regulations, we cannot
entirely eliminate the risk of accidental injury or contamination from these
materials. In the event of an accident, we could be held liable for any
resulting damages which could be substantial.
OUR COMPETITORS IN THE BIOTECHNOLOGY AND PHARMACEUTICAL INDUSTRIES MAY HAVE
SUPERIOR PRODUCTS, MANUFACTURING CAPABILITY OR MARKETING EXPERTISE.
Our business may fail because we face intense competition from major
pharmaceutical companies and specialized biotechnology companies engaged in the
development of immunotherapeutics and other therapeutic products directed at
cancer, infectious diseases and autoimmune disorders. Many of our competitors
have greater financial and human resources and more experience. Our competitors
may:
- develop safer or more effective immunotherapeutics and other
therapeutic products;
- implement more effective approaches to sales and marketing; or
- establish superior proprietary positions.
More specifically, if we receive regulatory approvals, some of our
immunotherapeutics will compete with well-established, FDA approved therapies
that have generated substantial sales over a number of years.
We anticipate that we will face increased competition in the future as new
companies enter our markets and scientific developments surrounding
immunotherapy and other cancer therapies continue to accelerate.
WE MAY NOT BE ABLE TO KEEP UP WITH THE RAPID TECHNOLOGICAL CHANGES IN THE
BIOTECHNOLOGY AND PHARMACEUTICAL INDUSTRIES WHICH COULD MAKE OUR
IMMUNOTHERAPEUTICS OBSOLETE.
The field of biotechnology is characterized by significant and rapid
technological change. Research and discoveries by others may result in medical
insights or breakthroughs which may render our immunotherapeutics obsolete even
before they generate any revenue.
OUR BUSINESS MAY BE DISRUPTED IF WE EXPERIENCE ANY PROBLEMS WITH Y2K COMPLIANCE.
The date fields coded in certain software products and computer systems need to
be able to distinguish 21st century dates from 20th century dates. The failure
to be able to do so is commonly known as the year 2000 or Y2K problem.
While we have yet to experience problems, our installed computer systems,
software products or other business systems, or those of our suppliers or
service providers, working either alone or in conjunction with other software
systems, may experience errors or interruptions due to the Y2K problem.
Some risks associated with the Y2K problem are beyond our ability to control,
including the extent to which our suppliers and service providers can address
the Y2K problem. The failure by a third party to adequately address the Y2K
issue may have an adverse effect on their operations, which, in turn, may have
an adverse impact on us. If, for instance, our supply of electricity and/or
water is interrupted, our freezers may not be able to adequately preserve our
immunotherapeutics and our scientific experiments may be interrupted.
16
<PAGE> 17
RISKS RELATING TO THE OFFERING
OUR OFFICERS AND DIRECTORS MAY BE ABLE TO BLOCK PROPOSALS FOR A CHANGE IN
CONTROL.
After this offering, Antigenics Holdings L.L.C. will control approximately 46.1%
of our outstanding common stock. Due to this concentration of ownership,
Antigenics Holdings may be able to prevail on all matters requiring a
stockholder vote, including:
- the election of directors;
- the amendment of our organizational documents; or
- the approval of a merger, sale of assets or other major corporate
transaction.
Our directors and officers, if they elect to act together, can control
Antigenics Holdings. In addition, several of our directors and officers directly
own shares of our common stock. See "Principal Stockholders."
WE MAY ALLOCATE THE NET PROCEEDS FROM THIS OFFERING IN WAYS WHICH YOU AND OTHER
STOCKHOLDERS MAY NOT APPROVE.
Management will have significant flexibility in applying the net proceeds of
this offering and could use these proceeds for purposes other than those
contemplated at the time of the offering.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND UNDER DELAWARE LAW MAY
MAKE AN ACQUISITION OF US MORE DIFFICULT.
We are incorporated in Delaware. Anti-takeover provisions of Delaware law and
our charter documents may make a change in control more difficult, even if the
stockholders desire a change in control. Our anti-takeover provisions include
provisions in our certificate of incorporation providing that stockholders'
meetings may only be called by the president or the majority of the board of
directors and a provision in our by-laws providing that our stockholders may not
take action by written consent. Additionally, our board of directors has the
authority to issue 1,000,000 shares of preferred stock and to determine the
terms of those shares of stock without any further action by our stockholders.
The rights of holders of our common stock are subject to the rights of the
holders of any preferred stock that may be issued. The issuance of preferred
stock could make it more difficult for a third party to acquire a majority of
our outstanding voting stock. Our charter also provides for the classification
of our board of directors into three classes. This "staggered board" generally
may prevent stockholders from replacing the entire board in a single proxy
contest. In addition, our directors may only be removed from office for cause.
Delaware law also prohibits a corporation from engaging in a business
combination with any holder of 15% or more of its capital stock until the holder
has held the stock for three years unless, among other possibilities, the board
of directors approves the transaction. The board may use this provision to
prevent changes in our management. Also, under applicable Delaware law, our
board of directors may adopt additional anti-takeover measures in the future.
OUR COMMON STOCK MAY HAVE A VOLATILE PUBLIC TRADING PRICE AND LOW TRADING
VOLUME.
Prior to this offering, our equity did not trade in a public market. An active
public market for our common stock may not develop or be sustained after this
offering. We and the underwriters, through negotiations, determined the initial
public offering price. The initial public offering price is not necessarily
indicative of the market price at which the common stock will trade after this
offering. The market prices for securities of companies comparable to us have
been highly volatile, and the market has experienced significant price
17
<PAGE> 18
and volume fluctuations that are unrelated to the operating performance of the
individual companies. Many factors may have a significant adverse effect on the
market price of the common stock, including:
- results of our preclinical and clinical trials;
- announcement of technological innovations or new commercial products
by us or our competitors;
- developments concerning proprietary rights, including patent and
litigation matters;
- publicity regarding actual or potential results with respect to
products under development by us or by our competitors;
- regulatory developments; and
- quarterly fluctuations in our revenues and other financial results.
THE SALE OF A SUBSTANTIAL NUMBER OF SHARES COULD CAUSE THE MARKET PRICE OF OUR
COMMON STOCK TO DECLINE.
After this offering, we will have 24,215,973 shares of common stock outstanding.
In connection with the private placement completed in November 1999, we are
obligated to file, approximately 90 days after the date of this prospectus, a
registration statement covering up to 2,808,817 shares for resale. When this
registration statement is declared effective by the Securities and Exchange
Commission, stockholders holding these shares will be permitted to resell their
shares on the Nasdaq National Market. Sales of these shares or anticipation of
those sales may depress our stock price.
The sale by our company or the resale by stockholders of shares of our common
stock after this offering could cause the market price of the common stock to
decline. The 20,715,973 shares of common stock outstanding after this offering
but not offered by this prospectus will be available for resale on the Nasdaq
National Market as follows:
- 2,808,817 shares when a resale registration statement to be filed
approximately 90 days after the date of this prospectus is declared
effective, and
- 17,907,156 shares one year following this offering, some of which
are subject to volume and other limitations.
We intend to file a registration statement following the offering to permit the
sale of approximately 4,800,000 shares of common stock under our equity
incentive plan and 300,000 shares of common stock under our employee stock
purchase plan. As of December 31, 1999, options to purchase 1,696,423 shares of
our common stock upon exercise of options with a weighted average exercise price
per share of $5.89 were outstanding. Many of these options are subject to
vesting that generally occurs over a period of up to five years following the
date of grant. Substantially all outstanding options are subject to agreements
with the underwriters not to sell the shares issuable upon their exercise for
one year after the offering. As of December 31, 1999, warrants to purchase
280,886 shares of our common stock with an exercise price per share of $13.96
were outstanding.
18
<PAGE> 19
HISTORY OF ANTIGENICS
We formed our business in March 1994 through the creation of a Delaware
corporation. We subsequently formed Antigenics L.L.C., a Delaware limited
liability company. In December 1995, we raised capital and concurrently
transferred to Antigenics L.L.C. all of the assets, properties and rights of the
Delaware corporation in exchange for a portion of the total initial equity
interests in Antigenics L.L.C. When we complete this offering, we will merge
Antigenics L.L.C. with and into Antigenics Inc., a newly formed Delaware
corporation. As part of the merger, holders will exchange membership units,
options and warrants in Antigenics L.L.C. for shares of Antigenics Inc. common
stock and options and warrants exercisable for shares of Antigenic Inc. common
stock.
Since inception, we have used our technology platform to develop heat shock
protein-based immunotherapeutics. Based on extensive research and preclinical
studies, we focused initially on the development of products for the treatment
of human cancer. We filed an IND in November 1996 to start clinical trials in
the United States and began our first phase I clinical trial for pancreatic
cancer patients at Memorial Sloan-Kettering Cancer Center in November 1997. We
subsequently began clinical trials in renal cell carcinoma, melanoma, colorectal
cancer and gastric cancer. During the next several years, we intend to conduct
clinical trials in additional cancer types and to further research and develop
immunotherapeutics for the treatment of infectious diseases and autoimmune
disorders.
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<PAGE> 20
USE OF PROCEEDS
We estimate the net proceeds from the sale of 3,500,000 shares of common stock
in this offering will be approximately $57.7 million after deducting the
underwriting discount and estimated offering expenses payable by us. Our net
proceeds are estimated to be approximately $66.5 million if the underwriters
exercise their over-allotment option in full.
We intend to use the net proceeds of this offering to fund clinical trials,
research, preclinical and development activities for our immunotherapeutics and
general corporate purposes, including working capital and an increase in our
administrative staff. We may also use a portion of the net proceeds to increase
our manufacturing capacity or to acquire complementary businesses or products.
As of the date of this prospectus, we have no specific understandings,
commitments or agreements with respect to any acquisition.
We have not determined the amount of net proceeds that we will use for each of
these purposes. Accordingly, we will have broad discretion to use the proceeds
as we see fit. Prior to spending the funds, we will invest the net proceeds in
short-term, investment grade, interest-bearing securities or guaranteed
obligations of the United States government.
RECENT FINANCING
In November 1999, we raised an aggregate of $39.2 million in a private
placement. We incurred approximately $293,000 in related costs, so we received
net proceeds of about $38.9 million. In the private placement, we sold member
interests and warrants to purchase member interests. When we reorganize into a
corporation, the member interests will convert into 2,808,817 shares of our
common stock and the warrants will convert into warrants to acquire an aggregate
of 280,886 shares of common stock at $13.96 per share.
DIVIDEND POLICY
We have never paid cash dividends. We currently intend to retain any future
earnings to finance the growth and development of our business. We do not intend
to pay cash dividends on our common stock in the foreseeable future.
20
<PAGE> 21
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements, principally in the sections
entitled "Management's Discussion and Analysis of Financial Conditions and
Results of Operations" and "Business." Generally, these statements can be
identified by the use of phrases like "believe," "expect," "anticipate," "plan,"
"may," "will," "could," "estimate," "potential," "opportunity," "future,"
"project" and similar terms and include statements about our:
- product research and development activities and projected
expenditures;
- the efficacy of our immunotherapeutics in treating diseases;
- plans for regulatory filings;
- receipt of regulatory approvals;
- spending the proceeds from this offering;
- cash needs;
- plans for sales and marketing;
- results of scientific research;
- implementation of our corporate strategy; and
- financial performance.
These forward-looking statements involve risks and uncertainties. Our actual
results could differ significantly from the results discussed in the
forward-looking statements. Factors that could cause or contribute to these
differences include those discussed in "Risk Factors." You should carefully
consider that information before you make an investment decision. You should not
place undue reliance on our forward-looking statements.
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<PAGE> 22
CAPITALIZATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following table sets forth, as of December 31, 1999, our historical and pro
forma capitalization and cash and cash equivalents. The pro forma capitalization
gives effect to the change from a limited liability company to a corporation and
the exchange of each unit of members' equity into 172.0336 shares of common
stock as if they occurred on December 31, 1999.
The pro forma, as adjusted capitalization reflects the pro forma adjustments
described in the previous sentence and the sale in this offering of 3,500,000
shares of common stock and the application of the estimated net proceeds from
this offering, after deducting the underwriting discount and estimated offering
expenses payable by us. This table does not include an aggregate of 1,696,423
shares of common stock issuable upon exercise of stock options outstanding as of
December 31, 1999 with a weighted average exercise price of $5.89 per share.
This table does not include an aggregate of 280,886 shares of common stock
issuable upon exercise of warrants outstanding as of December 31, 1999 at an
exercise price of $13.96 per share. This table should be read in conjunction
with our consolidated financial statements and the other financial information
included in this prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-----------------------------------------
PRO FORMA,
HISTORICAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents.............................. $ 46,418 $ 46,418 $ 104,520
======== ======== =========
Long-term debt, including current portion.............. 2,968 2,968 2,968
-------- -------- ---------
Members' capital....................................... 89,954 -- --
Stockholders' equity
Common stock, par value $0.01 per share; 100,000,000
shares authorized, 20,715,973 shares issued and
outstanding, pro forma; 24,215,973 shares issued
and outstanding, pro forma, as adjusted........... -- 207 242
Preferred stock, par value $0.01 par value per share;
1,000,000 shares authorized, no shares issued and
outstanding, pro forma and pro forma, as
adjusted.......................................... -- -- --
Additional paid-in capital............................. -- 89,747 147,452
Deferred compensation.................................. (659) (659) (659)
Deficit accumulated during the development stage....... (37,617) (37,617) (37,617)
-------- -------- ---------
Total members'/stockholders' equity.................. 51,678 51,678 109,418
-------- -------- ---------
Total capitalization......................... $ 54,646 $ 54,646 $ 112,386
======== ======== =========
</TABLE>
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<PAGE> 23
DILUTION
Our pro forma net tangible book value as of December 31, 1999, was $51.7
million, or $2.49 per share of common stock. Pro forma net tangible book value
per share before this offering represents the amount of our pro forma
stockholders' equity, less intangible assets, divided by the pro forma number of
shares of common stock outstanding as of December 31, 1999 after giving effect
to the change from a limited liability company to a corporation and the exchange
of each unit of members' equity into 172.0336 shares of common stock.
Pro forma net tangible book value per share after this offering gives effect to
the adjustments described above and to the application of net proceeds from the
sale of 3,500,000 shares of our common stock. As of December 31, 1999, our pro
forma net tangible book value after this offering would have been $109.4
million, or $4.52 per share.
This represents an immediate increase in net tangible book value to existing
stockholders of $2.03 per share and an immediate dilution to new investors of
$13.48 per share. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $18.00
------
Pro forma net tangible book value per share before this
offering................................................ $2.49
-----
Increase in pro forma net tangible book value per share
attributable to new investors........................... $2.03
-----
Pro forma net tangible book value per share after this
offering.................................................. $ 4.52
------
Dilution per share to new investors......................... $13.48
======
</TABLE>
Assuming the exercise in full of the underwriters' over-allotment option, our
adjusted pro forma net tangible book value after this offering at December 31,
1999 would have been approximately $4.78 per share, representing an immediate
increase in pro forma tangible book value of $2.29 per share to our existing
stockholders and an immediate dilution in pro forma net tangible book value of
$13.22 per share to purchasers in this offering.
The following table enumerates the number of shares of common stock purchased,
the total consideration paid and the average price per share paid by our
existing stockholders. The following table also enumerates the number of shares
of common stock purchased and the total consideration paid, calculated before
deduction of the underwriting discount and estimated offering expenses, and the
average price per share paid by the new investors in this offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...................... 20,715,973 85.5% $ 79,244,415 55.7% $ 3.83
New investors.............................. 3,500,000 14.5% $ 63,000,000 44.3% $18.00
---------- ---- ------------ ----
Total............................. 24,215,973 100% $142,244,415 100% $ 5.87
========== ==== ============ ==== ======
</TABLE>
The table above is calculated on a pro forma basis as of December 31, 1999 and
gives effect to the change from a limited liability company to a corporation as
described above.
The tables above assume no exercise of the underwriters' over-allotment option
and no exercise of stock options or warrants outstanding at December 31, 1999.
As of December 31, 1999, there were options outstanding to purchase a total of
1,696,423 shares, at a weighted average exercise price of $5.89 per share and
warrants outstanding to purchase a total of 280,886 shares, at an exercise price
of $13.96 per share. To the extent that any of these options or warrants are
exercised, there will be further dilution to new investors. Please see
"Capitalization," "Management -- Director Compensation," "-- Executive
Compensation," Note 5 to Antigenics' audited consolidated financial statements.
23
<PAGE> 24
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE, PER UNIT AND UNIT DATA)
We have derived the selected consolidated balance sheet data set forth below as
of December 31, 1998 and 1999, and the consolidated statement of operations data
for each of the years in the three-year period ended December 31, 1999, from our
audited consolidated financial statements included elsewhere in this prospectus.
We have derived the selected consolidated balance sheet data as of December 31,
1995, 1996 and 1997, and selected consolidated statement of operations data for
the years ended December 31, 1995 and 1996, from our audited consolidated
financial statements which are not included in this prospectus. These
consolidated financial statements of Antigenics L.L.C. have been audited by KPMG
LLP, independent certified public accountants.
You should read the selected consolidated financial data in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and the notes to those
consolidated financial statements included elsewhere in this prospectus.
Since we have operated historically as a limited liability company, in
accordance with federal, state and local income tax regulations which provide
that no income taxes are levied on United States limited liability companies and
each member of the limited liability company is individually responsible for
reporting the member's share of our net income or loss, we do not provide for
income taxes in our consolidated financial statements.
The unaudited pro forma information set forth below reflects adjustments which
are necessary, in our management's opinion, for a fair presentation of our
consolidated financial condition and results of operations on a pro forma basis.
The unaudited pro forma net loss, basic and diluted net loss per common share
and weighted average shares outstanding for the year ended December 31, 1999
give effect to the change from a limited liability company to a corporation and
the exchange of each unit of members' equity into 172.0336 shares of common
stock as if they occurred on January 1, 1999.
The unaudited pro forma selected balance sheet data as of December 31, 1999
reflect the events described above as if these events occurred as of December
31, 1999.
Increases in cash and cash equivalents, total current assets, total assets and
members' equity in the years presented below include the effects of the receipt
of net proceeds from our equity offerings that totalled approximately $10.5
million, $7.6 million, $18.0 million and $41.1 million in 1996, 1997, 1998 and
1999, respectively.
24
<PAGE> 25
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 31, 1994
(DATE OF
YEAR ENDED DECEMBER 31, INCEPTION) TO
------------------------------------------------ DECEMBER 31,
1995 1996 1997 1998 1999 1999
------- ------- ------- ------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue......................................... $ -- $ -- $ -- $ -- $ -- $ --
Operating expenses:
Research and development...................... (742) (2,017) (2,563) (6,102) (10,977) (22,514)
General and administrative.................... (2,453) (1,781) (1,549) (3,178) (6,875) (15,890)
Depreciation and amortization................. (40) (79) (202) (360) (1,005) (1,702)
------- ------- ------- ------- -------- --------
Loss from operations............................ (3,235) (3,877) (4,314) (9,640) (18,857) (40,106)
Interest income, net............................ 8 281 481 736 723 2,229
Non-operating income............................ -- 250 -- -- 10 260
------- ------- ------- ------- -------- --------
Net loss........................................ $(3,227) $(3,346) $(3,833) $(8,904) $(18,124) $(37,617)
======= ======= ======= ======= ======== ========
Net loss per members' equity unit, basic and
diluted....................................... $(40.92) $(39.42) $(42.81) $(93.07) $(171.85)
======= ======= ======= ======= ========
Weighted average number of units outstanding,
basic and diluted............................. 78,854 84,876 89,525 95,673 105,468
======= ======= ======= ======= ========
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Pro forma net loss.............................. $(18,124)
Pro forma net loss per common share, basic and
diluted....................................... $ (1.00)
Pro forma weighted average shares outstanding,
basic and diluted............................. 18,144
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, DECEMBER 31,
--------------------------------------------------- 1999
1995 1996 1997 1998 1999 PRO FORMA
------- ------- ------- ------- ------- -----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.............. $ 791 $ 9,588 $13,086 $22,168 $46,418 $46,418
Total current assets................... 876 9,639 13,246 22,447 47,672 47,672
Total assets........................... 1,124 10,041 14,090 26,636 56,004 56,004
Total current liabilities.............. 584 883 878 2,285 2,171 2,171
Long-term liabilities, less current
portion.............................. -- -- -- 709 2,155 2,155
Members' equity/stockholders' equity... 540 9,158 13,212 23,641 51,678 51,678
</TABLE>
25
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of the financial condition and results
of operations in conjunction with our consolidated financial statements and
their notes appearing elsewhere in this prospectus.
OVERVIEW
Since our inception in March 1994, our activities have primarily been associated
with the development of our heat shock protein technology and our lead
immunotherapeutic, Oncophage. Our business activities have included:
- establishing manufacturing capabilities;
- product research and development;
- manufacturing immunotherapeutics for clinical trials;
- regulatory and clinical affairs; and
- intellectual property prosecution.
We have incurred significant losses since our inception because we have not
generated any revenues. As of December 31, 1999, we had an accumulated deficit
of $37,617,000. We expect to continue to incur net losses over the next several
years as we complete our Oncophage clinical trials, apply for regulatory
approvals, continue development of our technology and expand our operations. We
have been dependent on funding from equity and debt financings to finance our
business activities. Our financial results may vary depending on many factors,
including:
- the progress of Oncophage in the regulatory process;
- the acceleration of our other immunotherapeutic candidates into
preclinical and clinical trials;
- our investment in manufacturing process development and in
manufacturing capacity for Oncophage and other product candidates;
- development of a sales and marketing staff and initial sales
activities if Oncophage is approved for commercialization; and
- the progress of our other additional research and development
efforts.
In December 1999, we accelerated the vesting on options to acquire approximately
268,700 shares of common stock that we had granted to outside advisors. As a
result, we recognized a charge of $2,093,000 in the fourth quarter of 1999 based
on a fair value of $15.00 per share.
In addition, as of December 31, 1999, we had outstanding unvested options to
acquire approximately 41,300 shares of our common stock for which the exercise
price will be set at an amount equal to the fair value of an underlying share of
common stock at the time of vesting. We will take a compensation charge equal to
the fair value of these options at the time these options vest using our option
pricing model.
HISTORICAL RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
Revenue: We generated no revenue during the year ended December 31, 1999 or
during the year ended December 31, 1998.
Research and Development: Research and development expense increased 79.9% to
$10,977,000 for the year ended December 31, 1999 from $6,102,000 for the year
ended December 31, 1998. This increase was partially attributable to the
increase in the non-cash charge for options granted and earned by outside
advisors, directors and employees to $1,814,000 for the year ended December 31,
1999 from $314,000 for
26
<PAGE> 27
the year ended December 31, 1998. The remainder of the increase was primarily
due to the number of later stage Oncophage clinical trials in process that
increased costs by $1,055,000, an increase in our staff to support our expanded
business activities that increased costs by $1,342,000 and other ongoing
development activities that increased costs by $978,000. Research and
development expenses consisted primarily of compensation for our employees and
outside advisors conducting research and development work, funding paid to the
University of Connecticut, where we sponsor research, costs associated with the
operation of our manufacturing and laboratory facility and funding paid to
support our Oncophage clinical trials.
General and Administrative: General and administrative expenses increased
116.3% to $6,875,000 for the year ended December 31, 1999 from $3,178,000 for
the year ended December 31, 1998. This increase was partially due to the
increase in the non-cash charge for options granted and earned by outside
advisors, directors and employees to $3,213,000 for the year ended December 31,
1999 from $795,000 for the year ended December 31, 1998. The remainder of the
increase was primarily due to the growth in the number of our employees to
support our expanded business operations that increased costs by $595,000.
General and administrative expenses consisted primarily of personnel
compensation, office expenses and professional fees.
Depreciation and Amortization: Depreciation and amortization expense increased
179.4% to $1,006,000 for the year ended December 31, 1999 from $360,000 for the
year ended December 31, 1998. This increase was due to the depreciation expense
of our new 30,225 square foot manufacturing and laboratory facility and related
equipment.
Interest Income, net: Interest income increased 37.8% to $1,014,000 for the
year ended December 31, 1999 from $736,000 for the year ended December 31, 1998.
This increase was principally attributable to a higher average cash and cash
equivalents balance during the year ended December 31, 1999 as compared to the
year ended December 31, 1998 due to a $28,000,000 private equity financing
completed in January 1999 and a $39,200,000 private equity financing completed
in November 1999. Interest expense was $291,000 during the year ended December
31, 1999 due to borrowings under a credit facility to fund the construction of
our manufacturing and laboratory facility. We incurred no interest expense
during the year ended December 31, 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenue: We generated no revenue during the year ended December 31, 1998 or
during the year ended December 31, 1997.
Research and Development: Research and development expenses increased 138.1% to
$6,102,000 for the year ended December 31, 1998 from $2,563,000 for the year
ended December 31, 1997. This increase was due primarily to an increase of
$1,777,000 in salary cost due to an increase in the number of our employees as
we expanded our business and clinical activities, an increase of $190,000 in
expense to support our Oncophage clinical trials, an increase in professional
fees of $126,000 related to expansion of our intellectual property and patent
activities, and the non-cash charge for options granted to and earned by outside
advisors, employees and directors of $236,000.
General and Administrative: General and administrative expenses increased
105.2% to $3,178,000 for the year ended December 31, 1998 from $1,549,000 for
the year ended December 31, 1997. This increase was due primarily to an increase
of $196,000 in costs related to increased personnel necessary to support our
expanding business and clinical operations and the non-cash charge for options
granted and earned by outside advisors, employees and directors of $621,000.
Depreciation and Amortization: Depreciation and amortization expense increased
78.2% to $360,000 for the year ended December 31, 1998 from $202,000 for the
year ended December 31, 1997. This increase was due to the depreciation expense
of our manufacturing and laboratory equipment.
Interest Income, net: Interest income increased 53.0% to $736,000 for the year
ended December 31, 1998 from $481,000 for the year ended December 31, 1997. This
increase was primarily attributable to a higher
27
<PAGE> 28
average cash and cash equivalents balance during the year ended December 31,
1998 as compared to the year ended December 31, 1997. There was no interest
expense during the years ended December 31, 1998 and 1997.
INCOME TAXES
Because we have historically operated as a limited liability company for tax
purposes, we have allocated and will allocate all taxable losses incurred prior
to the closing of this offering to the members for reporting on their income tax
returns. As a result, we will not be able to offset future taxable income, if
any, against losses incurred prior to the closing of this offering. Upon our
conversion from a limited liability company to a corporation, we expect to
recognize a valuation allowance equal to any gross deferred tax assets as we
believe that it is more likely than not that we will not realize these deferred
tax assets.
LIQUIDITY AND CAPITAL RESOURCES
We have incurred annual operating losses since inception, and at December 31,
1999, we had incurred an accumulated deficit of $37,617,000. Since our
inception, we have financed our operations primarily through various private
placements of equity, interest income earned on cash and cash equivalent
balances and debt provided through a credit line secured by some of our
manufacturing and laboratory assets. From our inception through December 31,
1999, we raised aggregate equity proceeds of $79,244,000 and borrowed $3,481,000
under our $5,000,000 credit facility. We expect that we will fund our capital
expenditures and growing operations over the next two years with the net
proceeds from this offering and current working capital. Our future capital
requirements include, but are not limited to, supporting our Oncophage clinical
trial efforts and continuing our other research and development programs.
Satisfying our long-term liquidity needs will require the successful
commercialization of Oncophage or other products and may require additional
capital.
Our cash and cash equivalents at December 31, 1999 were $46,418,000, an increase
of $24,250,000 from December 31, 1998. During the year ended December 31, 1999
we used cash primarily to finance operations, including our Oncophage clinical
trials, and to make capital expenditures related to the establishment of our
manufacturing and laboratory facility.
Net cash used in operating activities for the years ended December 31, 1997,
1998 and 1999 was $3,518,000, $6,377,000 and $13,457,000. The increase resulted
from the increase in the number and size of our Oncophage clinical trials and
general expansion of our operations.
Net cash used in investing activities for the years ended December 31, 1997,
1998 and 1999 was $619,000, $3,676,000 and $4,926,000. The investments were
primarily for the construction of our manufacturing and laboratory facility and
equipment, furniture and fixtures. We partially financed our new manufacturing
and laboratory facility in Woburn, Massachusetts through the $5,000,000 credit
facility discussed below and available cash balances.
Net cash provided by financing activities was $7,635,000, $19,134,000 and
$42,633,000 for the years ended December 31, 1997, 1998 and 1999. Since
inception, our primary source of financing has been from equity investments.
During 1997, 1998 and 1999, equity contributions from private placements and, in
1998 and 1999, exercises of options, totaled approximately $7,635,000,
$18,225,000 and $41,135,000. At December 31, 1999, we had outstanding $2,968,000
under a $5,000,000 credit facility to finance the construction of our
manufacturing and laboratory facility and the purchase of related equipment.
Loans that are drawn down on the credit facility are secured by specific assets,
including leasehold improvements, which they finance.
28
<PAGE> 29
YEAR 2000 COMPLIANCE
The following constitutes "Year 2000 Readiness Disclosure" under the Year 2000
Information and Readiness Disclosure Act of 1998.
The year 2000 issue, or Y2K, refers to potential problems with computer systems
or any equipment with computer chips or software that use dates where the date
has been stored as just two digits. On or after January 1, 2000, any clock or
date recording mechanism incorporating date sensitive software which uses only
two digits to represent the year may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruption of operations, including, among other things,
a temporary inability to process transactions, perform laboratory analyses, or
engage in similar business activities.
We are a biopharmaceutical company and our proposed product candidates are not
software or computer based. Therefore, our proposed products are not directly
impacted by the Y2K problem. Our exposure to potential risks from this problem
involves computer and information technology systems, and other systems which
include embedded technology using date sensitive programs such as for:
- heating, ventilation, air conditioning, or HVAC;
- scientific instrumentation;
- manufacturing and laboratory equipment; and
- laboratory facilities.
Our internal information systems consist of off-the-shelf accounting and e-mail
systems, off-the-shelf application programs such as spreadsheet, word
processing, graphics, database management, and presentation software, and some
instrumentation/data acquisition software. Non-informational technology systems
consist of HVAC and telecommunications.
Prior to December 31, 1999, we completed the process of determining whether
there were any critical areas of our business that were not year 2000 compliant.
We estimate that the total cost of addressing any year 2000 problems will be
immaterial. We believe our worst case scenario relating to year 2000 risks
includes a power interruption and a lack of supplies to support our clinical
trials. We have implemented a contingency plan to cover these situations,
including expanding our supplies inventory and maintaining a generator at our
manufacturing facility for the supply of electrical power. As of the date of
this prospectus, we have not encountered year 2000 related problems. We continue
to monitor developments in this area.
Any year 2000 compliance problems that arise could materially and adversely
affect our business, results of operations or cash flow.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, we are exposed to fluctuations in interest
rates as we seek debt financing to make capital expenditures. We do not employ
specific strategies, such as the use of derivative instruments or hedging, to
manage our interest rate exposures. There has been no change since the fiscal
year ended December 31, 1998 with respect to our interest rate exposures or our
approach toward those exposures. Further, we do not expect our market risk
exposures to change in the near term.
The information below summarizes our market risks associated with debt
obligations as of December 31, 1999. Fair values included herein have been
estimated taking into consideration the nature and terms of each instrument and
the prevailing economic and market conditions at December 31, 1999. The table
presents cash flows by year of maturity and related interest rates based on the
terms of the debt.
<TABLE>
<CAPTION>
ESTIMATED YEAR OF MATURITY
FAIR CARRYING -------------------------------------------
VALUE AMOUNT 2000 2001 2002 2003
---------- ---------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Long-term debt(1)........ $3,026,000 $2,968,000 $813,000 $939,000 $1,022,000 $194,000
</TABLE>
- ---------------
(1) Fixed interest rates from 13.954% to 15.084%
29
<PAGE> 30
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
standards for derivative instruments, including derivatives instruments embedded
in other contracts, and for hedging activities. SFAS No. 133 is effective for
all of our fiscal quarters beginning January 1, 2001. We do not expect this
statement to affect us as we currently do not use derivative instruments or
engage in hedging activities.
30
<PAGE> 31
BUSINESS
OVERVIEW
Antigenics is engaged in the discovery and development of novel
immunotherapeutic drugs for the treatment of life threatening and chronic
medical conditions. Our immunotherapeutics are based on a specific class of
proteins known as heat shock proteins and their ability to modulate the immune
system. We are currently evaluating our lead immunotherapeutic, Oncophage, in
six clinical trials for the treatment of four different cancers, and we expect
to start our first pivotal clinical trial by mid-2000. We are also developing
immunotherapeutics to treat infectious diseases, such as genital herpes, and
autoimmune disorders, such as diabetes and multiple sclerosis. Based upon our
scientific and drug development skills, our technology platform and our
strategic expertise, we intend to become a leader in drug discovery, development
and commercialization.
THE IMMUNE SYSTEM
The immune system is the body's natural defense mechanism to prevent and combat
disease. The immune system differentiates between normal tissue, or "self,"
versus diseased tissue or "non-self." When a competent immune system recognizes
diseased cells, the immune system initiates a series of steps that results in
the elimination of these cells. There are two types of immune response:
antibody-based and T cell-based.
Antibody-based immune response is primarily involved in the prevention of
diseases. Antibodies are proteins produced by the body in response to disease
causing agents known as pathogens. Antibodies bind to pathogens, such as viruses
and bacteria, and block their ability to infect cells. Preventive vaccines that
trigger an antibody-based immune response have been very successful in reducing
the incidence of several deadly diseases, including smallpox, polio and measles.
These vaccines consist of weakened, or attenuated, pathogens that stimulate the
production of antibodies. However, these types of vaccines have not been
effective in the prevention or treatment of many serious diseases, including
cancer, herpes, tuberculosis, hepatitis and HIV.
T cell-based immune response, on the other hand, is primarily involved in
combating diseases, such as cancers or infections. T cells are specialized white
blood cells that are normally produced by the body to kill cancer cells and
infected cells. T cell-based immune response begins when specialized immune
cells called dendritic cells capture antigens, which are the identifying
structural components of cancers and pathogens. Once inside dendritic cells,
antigens are broken down into small fragments called peptides that are
subsequently displayed on the surface of the dendritic cell. T cells continually
scan the surface of dendritic cells for peptides. If T cells recognize displayed
peptides as foreign or non-self, they replicate rapidly and then search for and
kill other diseased cells containing those same peptides. Hormones known as
cytokines enhance this T cell-based immune response by activating various
components of the immune system.
Significant scientific evidence suggests that cancers and infections trigger a T
cell-based immune response during the initial course of their progression. This
immune response, however, is not always sufficient to eradicate the disease.
Tumor cells, for example, hide their antigens and produce substances that
suppress the patient's immune response.
31
<PAGE> 32
To date, efforts to develop immunotherapeutics that sufficiently overcome this
suppression of the immune system and stimulate T cells to selectively and
accurately target and kill diseased cells have failed due to one or both of the
following:
- the inability of drug developers to discover the appropriate
antigens that identify diseases such as a particular person's
cancer; and
- the inability to present these relevant antigens to activate T cells
to selectively destroy diseased cells.
We believe our immunotherapeutics specifically address these issues.
OUR TECHNOLOGY PLATFORM
INTRODUCTION
We are the pioneers in activating T cells using purified heat shock
protein-peptide complexes. In individuals who develop cancer, infections and
autoimmune disorders, the immune system fails in its normal function. Our
immunotherapeutics are designed to restore this function and treat these life
threatening or chronic disease conditions.
We believe our immunotherapeutics will be applicable to the treatment of all
cancer types and several types of infectious diseases and autoimmune disorders.
Our immunotherapeutics consist of two components: a variable component,
consisting of small protein fragments called peptides, which is necessary for
the targeting of specific diseases; and a constant component, consisting of a
heat shock protein, which is necessary for the activation of a T cell-based
immune response to the targeted disease. In the case of cancer, which is a
highly variable disease from one patient to another, we purify, from each
patient's own tumor tissue, heat shock proteins that are bound, or complexed, to
peptides. Our cancer immunotherapeutics are therefore specific to each patient.
In contrast, for each infectious disease which is generally caused by a common
pathogen, we use a human heat shock protein bound to peptides derived from the
target pathogen. Our immunotherapeutics for infectious diseases therefore will
be disease-specific rather than patient-specific. Our immunotherapeutic for
autoimmune disorders will be generic, meaning it will be intended for the
treatment of all disorders that result in T cells attacking healthy tissue.
The principle upon which our technology platform is based extends back over 50
years when scientists began using genetically identical laboratory animals to
study the immune response to cancer. Researchers demonstrated that animals
vaccinated with attenuated, or weakened, tumor cells are immune to subsequent
injections of live tumor cells. Further, researchers have shown that this
immunity to cancer is tumor-specific, meaning that animals are immune only to
the cancer used for immunization and not to any other kind of cancer. Twenty
years ago, the chairman of our scientific advisory board, Pramod Srivastava,
discovered that cancers harbor molecular factors known as heat shock proteins,
which are responsible for conferring immunity to cancer. Consistent with the
observation that immunity generated with attenuated tumor cells is
tumor-specific, we discovered that heat shock proteins generate immunity only to
the tumor from which they are purified.
HEAT SHOCK PROTEINS
Heat shock proteins are a class of proteins that play a major role in
transporting peptides, including antigens, within a cell and are thus often
called chaperones. In this capacity, heat shock proteins bind to the entire
antigenic repertoire or fingerprint of the cell in which they reside. Heat shock
proteins are present in all cells of all organisms from bacteria to mammals and
their structure and function are similar across these diverse life forms.
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<PAGE> 33
Published research suggests that heat shock proteins play a central role in the
generation of immune responses. This role includes coordinating the breakdown
and transport of peptides from the point of their generation inside cells to
their ultimate display on the cell's surface for recognition by T cells.
Although heat shock proteins inside tumor cells and pathogen-infected cells help
display antigens to the immune system, tumors and pathogens simultaneously
employ strategies to evade immune responses. In some cases, this evasion of
immune responses results in disease progression.
The ability of heat shock proteins to chaperone peptides is key to our
technology platform. When we purify heat shock proteins from tumor cells or
pathogen-infected cells according to our manufacturing protocols, the heat shock
proteins remain bound to the entire repertoire of peptides produced by the tumor
or pathogen. These purified heat shock protein-peptide complexes isolated from
diseased cells are our immunotherapeutics.
We believe that when purified heat shock protein-peptide complexes are injected
into the skin, they stimulate a powerful T cell-based immune response capable of
targeting and killing cancers and pathogen-infected cells from which these
complexes originated. Doctors or nurses inject our immunotherapeutics into the
skin to take advantage of the high concentration of dendritic cells in this
region. These dendritic cells express receptors that specifically recognize heat
shock proteins; therefore, dendritic cells efficiently capture and process our
immunotherapeutics. Once inside dendritic cells, heat shock protein-peptide
complexes separate and the dendritic cell displays the peptides on its surface
where T cells can recognize the peptides.
Dendritic cells expressing cancer-specific or pathogen-specific peptides
activate T cells that are capable of specifically targeting and killing diseased
cells throughout the body that express those same peptides. The interaction of
heat shock proteins with their receptors on dendritic cells also leads to
secretion of cytokines by the dendritic cells that further stimulate the immune
system.
33
<PAGE> 34
THE MECHANISM OF HEAT SHOCK PROTEIN-INDUCED IMMUNE RESPONSE
[CELL GRAPH]
STEP 1. Injection of purified heat shock protein-peptide complexes into skin
STEP 2. Heat shock protein-peptide complexes bind to receptor on surface of
dendritic cell and are subsequently internalized
STEP 3. Heat shock proteins and peptides separate inside dendritic cell
STEP 4. Dendritic cell presents peptides on its surface for recognition by T
cells. This activates T cells to kill diseased cells, such as tumor or
pathogen-infected cells, expressing those same peptides. Heat shock proteins
also stimulate dendritic cells to release cytokines which activate natural
killer cells and enhance the immune response
<TABLE>
<S> <C>
Heat shock protein receptor Dendritic cell
Heat shock protein Peptide presented on surface of dendritic cell
Peptide chaperoned by heat shock protein
</TABLE>
We believe our immunotherapeutics stimulate the immune system to recognize the
entire antigenic fingerprint of a tumor or pathogen. Due to this characteristic,
we believe our immunotherapeutics will:
- trigger the immune system to recognize and destroy all tumor or
pathogen-infected cells in the body; and
- make it difficult for tumors or pathogens to escape recognition by
the immune system.
34
<PAGE> 35
We believe that the dendritic cells displaying these peptides trigger a more
potent immune response than that achieved by the presentation of these same
peptides by the tumor or pathogen-infected cell.
Our preclinical studies with heat shock protein immunotherapeutics have
demonstrated a beneficial effect in preventing or treating 13 types of cancer in
three different species. The cancer types tested include cancers of the skin,
colon, lung and other tissues. Further, our immunotherapeutics show therapeutic
benefit in animals with metastatic disease, which is when cancer has spread
beyond the primary tumor to distant regions of the body. Metastatic disease is
often responsible for the relapse and ultimate death of patients with cancer.
OUR PRODUCTS UNDER DEVELOPMENT
INTRODUCTION
The chart below summarizes the indications and status for each of our products
and development programs. We use "HSPPC" as an abbreviation for "heat shock
protein-peptide complex." The number following HSPPC is the molecular weight of
the heat shock protein used in the product. For cancer applications, we call
HSPPC-96 "Oncophage."
<TABLE>
<CAPTION>
PRODUCT INDICATION STATUS
- ------- ---------- ------
<S> <C> <C>
CANCER
Oncophage Renal cell carcinoma Phase II trial ongoing
Phase I/II trial completed
Melanoma Phase II trial ongoing
Phase I/II trial completed
Colorectal cancer Phase II trial enrollment completed
Gastric cancer Phase I/II trial ongoing
Pancreatic cancer Phase I trial completed
Non-Hodgkin's lymphoma Phase II trial planned
Sarcoma Phase II trial planned
HSPPC-70-C Various cancers Research
HSPPC-90-C Various cancers Research
HSPPC-56-C Various cancers Research
INFECTIOUS DISEASES
HSPPC-96-GH Genital herpes Preclinical
HSPPC-70-GH Genital herpes Preclinical
HSPPC-56-I Various infectious diseases Research
HSPPC-70-I Various infectious diseases Research
AUTOIMMUNE DISORDERS
gp96 Type 1 diabetes Research
Multiple sclerosis Research
</TABLE>
OUR CANCER IMMUNOTHERAPEUTICS
Background. The American Cancer Society estimated that doctors would diagnose
approximately 1.2 million new cases of cancer in the United States in 1999.
Cancer is the second leading cause of death in the United States, resulting in
an estimated 563,100 deaths in 1999. The American Cancer Society reports that
since 1990 medical professionals have diagnosed nearly 12 million cases of
cancer, and cancer has killed nearly 5 million people in the United States.
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<PAGE> 36
Cancer results from the uncontrolled proliferation of abnormal cells.
Eventually, these cells form a mass referred to as a tumor. As the tumor grows,
it pushes outward, often invading adjacent tissues and organs and interfering
with their normal function. In addition, small groups of cells may break away
from the primary tumor and spread or metastasize. Tumors produced at distant
sites are referred to as metastatic tumors.
The uncontrolled proliferation of cancer cells is due to alterations, or
mutations, in a cell's DNA. Mutations can take place when a gene is exposed to
radiation or particular drugs or chemicals, or when some as yet unexplained
internal change occurs. The mutations in DNA also lead to production of
antigens. Because mutations occur randomly, the antigenic fingerprint of each
person's cancer is unique.
Studies in animals have confirmed that a unique repertoire of antigens is
associated with each primary tumor. As cancers metastasize, they continue to
mutate, potentially producing new antigens not found in the primary tumor of the
same patient. However, we believe that a significant overlap exists between the
antigenic fingerprint of the metastatic cells and the primary tumor of the same
patient.
Current Treatments. Surgery, chemotherapy and radiotherapy are the three most
commonly used methods for treating cancer. Medical professionals often
administer a combination of these treatments to a cancer patient, depending upon
the type of cancer and the extent of the disease. Surgery is curative only when
a doctor detects a tumor at a relatively early stage of growth and is able to
completely remove the tumor. Unfortunately, most tumors metastasize when they
are very small, ultimately causing relapse and death in many cancer patients.
The use of chemotherapy or radiotherapy sometimes improves survival rates;
however, these treatments have significant limitations.
High rates of treatment failure and limitations posed by severe side effects and
tumor resistance have compelled researchers to focus on alternative strategies
of cancer treatment. Immunotherapeutics have the ability to target and destroy
widely disseminated disease without damaging normal tissue. In addition,
immunotherapeutics do not have many of the shortcomings of traditional cancer
treatments.
Our Approach. We purify our cancer immunotherapeutics from portions of a
patient's tumor that a doctor has surgically removed. Our cancer
immunotherapeutics are patient-specific and therefore incorporate the entire
antigenic fingerprint of each patient's own tumor. Because our cancer
immunotherapeutics contain overlapping antigens present in both the primary and
metastatic tumors, we believe they will be effective in treating all the tumor
cells that remain in the body that are derived from the primary tumor.
ONCOPHAGE
Oncophage is our lead cancer immunotherapeutic. We are evaluating Oncophage in
four different cancers in six separate phase II or phase I/II clinical trials.
Oncophage consists of purified, patient-specific heat shock protein-peptide
complexes designed to elicit a T cell-based immune response to a patient's
cancer. After a surgeon removes a patient's tumor, the hospital or clinic ships
a portion of the tumor tissue frozen by overnight courier to our facility. We
purify Oncophage from the tumor tissue using our proprietary manufacturing
process in less than ten hours. Depending on the dose, we require a minimum of
one to three grams of tumor tissue to yield a sufficient amount of Oncophage for
a typical course of treatment.
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<PAGE> 37
We formulate Oncophage in sterile saline solution and package it in standard
single injection vials in our manufacturing facility. We subject the final
immunotherapeutic to extensive quality control testing, including sterility
testing of each lot. We ship the product frozen via overnight courier back to
the hospital. We have developed sophisticated tracking systems and procedures
designed to ensure correct delivery of Oncophage to the appropriate patient.
ONCOPHAGE MANUFACTURING PROCESS
[CHART]
<TABLE>
<S> <C> <C> <C>
STARTING MATERIAL MANUFACTURING FINAL PRODUCT
Tumor tissue Sample of tissue Heat shock protein- Product frozen
removed by shipped frozen to our peptide complexes and shipped to
surgery manufacturing purified from hospital/clinic for
facility tumor tissue at patient treatment
our facility
</TABLE>
There are several benefits associated with the production and administration of
our autologous product:
- we can sterilize Oncophage through simple filtration; sterility is
required for FDA approval of a product that will be injected into
humans;
- the scheduling of production at our central facility is flexible
because we purify Oncophage from frozen tumor samples;
- doctors can administer Oncophage when the patient is ready to begin
treatment because Oncophage is stored frozen and has a current
shelf-life of at least six months; and
- Oncophage consists of a purified protein which can be consistently
produced from most tumor types.
A medical professional initially administers Oncophage to a patient four to six
weeks after a doctor surgically removes the patient's primary or metastatic
tumor. The typical course of treatment consists of an injection into the skin
administered once per week for four to six weeks. An oncologist may recommend
treating a patient with more than one course of Oncophage.
ONCOPHAGE COURSE OF TREATMENT
[CHART]
<TABLE>
<S> <C>
4-6 week Repeat course of Oncophage treatment
recovery upon request
</TABLE>
<TABLE>
<S> <C> <C>
Surgery Oncophage once per Follow up
week for 4-6 weeks
</TABLE>
Although we believe Oncophage will be applicable to the treatment of all cancer
types, our initial focus is on cancers that are resistant to available treatment
options. Further, we have chosen types of cancer and stages of disease that
typically yield tumors that doctors can surgically remove. Additionally, in
order to
37
<PAGE> 38
complete clinical trials rapidly and file for regulatory approvals, we have
selected cancers and stages of disease which allow us to evaluate our
immunotherapeutics in clinical trials with near term endpoints.
We filed an IND for Oncophage in November 1996 that the FDA allowed on December
20, 1996. To date, we have treated approximately 160 advanced stage, metastatic
cancer patients with Oncophage in our clinical programs. We started enrolling
patients in our first clinical trial at the Memorial Sloan-Kettering Cancer
Center in New York, New York in November 1997.
We believe the collective results from these clinical trials show that Oncophage
is generally safe and well tolerated. These results also demonstrate preliminary
indications of clinical benefit in a number of these patients. Moreover, we have
shown that Oncophage can generate an anti-tumor immunological response. In
addition, we believe we can manufacture Oncophage consistently and in sufficient
quantities from most human cancer tissue.
The investigators participating in our clinical programs have documented tumor
regression using standard response criteria. A complete response means that all
tumor tissue has disappeared and the patient appears to be disease free. A
partial response means that evaluable tumor tissue has shrunk by at least 50%. A
minor response means that the tumor has shrunk by 25-50%. Stable disease means
that the tumor has either shrunk or grown by less than 25%. Progressive disease
means that the tumor has grown by more than 25%.
The investigators also document survival. Median survival refers to the time at
which 50% of patients diagnosed with a particular cancer are alive.
Renal Cell Carcinoma
Background. Renal cell carcinoma is the most common type of kidney cancer. The
American Cancer Society estimated that doctors would diagnose about 30,000 new
cases of kidney cancer in the United States in 1999 and that the disease would
kill approximately 11,900 people during 1999. Of the 30,000 patients diagnosed
with kidney cancer, approximately 85% have the specific type of kidney cancer
known as renal cell carcinoma. By the time renal cell carcinoma is diagnosed in
these patients, about one-third of them have developed metastatic disease.
The median survival of patients with metastatic renal cell carcinoma is
approximately 12 months. For patients with metastatic disease, the only FDA
approved treatment is intravenous high-dose interleukin-2, a human cytokine. The
response rate, which includes partial responses and complete responses, of
patients who are treated with high-dose interleukin-2 is approximately 15%.
Treatment with high-dose interleukin-2 is generally associated with severe
adverse events. These side effects often can lead to discontinuation of
treatment. Although not FDA-approved for the treatment of renal cell carcinoma,
a lower-dose of interleukin-2 injected underneath the skin, or subcutaneously,
either alone or in combination with other cytokines, has become a treatment
option. This treatment regimen has been the subject of a number of small studies
with widely varying outcomes. Generally, side effects using the subcutaneous
route of administration have been milder than those associated with high-dose,
intravenous treatment.
Our Clinical Program. In our phase I/II trial, we enrolled patients with
measurable metastatic renal cell carcinoma. We conducted this trial with
clinical investigators at the M.D. Anderson Cancer Center in Houston, Texas.
These patients did not receive prior or concurrent cancer therapy. After
surgical removal of their primary tumors, patients were treated at one of three
dose levels of Oncophage: 2.5 micrograms, 25 micrograms or 100 micrograms. The
clinical investigators treated 38 patients, of whom 34 could be evaluated with
standard radiology measurements.
Of the 34 evaluable patients, 13 patients responded or had stable disease. Four
patients had a partial response and one patient had a minor response. The other
eight patients showed stabilization of their disease. Three of these patients
had been stable in excess of 10 months. The response rate in this trial, which
does not include patients with a minor response or stable disease, was 12% and
no adverse events were associated with treatment with Oncophage.
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<PAGE> 39
The median survival in this trial has not yet been reached; this means that more
than half of the patients are still alive with an average follow up time of 12
months.
While the analysis of immunological results is still ongoing, testing to date
shows that in four out of five patients who responded clinically, the number of
T cells increased after treatment with Oncophage. Further, in all patients who
responded clinically, the number of natural killer cells increased after
treatment with Oncophage.
In the phase I/II trial, clinical investigators found that Oncophage is
generally safe and well tolerated. Sixty-three percent of our patients received
more than one course of treatment with Oncophage.
We were able to prepare Oncophage successfully from approximately 98% of renal
cancer carcinoma samples we received at our manufacturing facility for this
phase I/II trial. Based on this result, we believe we will be able to
manufacture Oncophage for nearly all renal cell carcinoma patients whose tumors
a surgeon can remove.
Based on the results from our phase I/II clinical trial, we have initiated a 60
patient phase II trial for patients with metastatic renal cell carcinoma at the
M.D. Anderson Cancer Center. For this trial, the dose of Oncophage has been set
at 25 micrograms and patients receive one dose once a week for four weeks,
followed by one dose every two weeks. Some patients may also receive an
injection of subcutaneous interleukin-2 if they have not had an adequate
response after three months of treatment with Oncophage. We anticipate that we
will complete this phase II trial in the first quarter of 2000. Based on the
analysis of the results from the phase I/II and phase II trials, we anticipate
that we will start a pivotal trial for renal cell carcinoma by the middle of
2000.
Melanoma
Background. Melanoma is the most serious form of skin cancer. The American
Cancer Society estimated that doctors would diagnose about 44,200 new cases of
melanoma in the United States in 1999 and that the disease would kill
approximately 7,300 people during 1999. The incidence of melanoma is growing at
5-7% per year, which is substantially faster than the growth in incidence rates
of most other cancers. Oncologists treat advanced or metastatic melanoma, also
known as stage III or IV, with surgery, radiation therapy, immunotherapy, or
chemotherapy depending on the case. Approximately 20% of all melanoma patients
at the time of their first diagnosis have stage III or stage IV disease.
Existing treatments have not significantly improved overall survival of patients
with melanoma. The median survival of patients with stage III melanoma varies
widely according to published literature. At the M.D. Anderson Cancer Center,
the median survival of patients with late stage III melanoma is 24 months.
According to published literature, patients with stage IV melanoma have a median
survival of about seven months. Although oncologists use various treatment
options, the only FDA approved drug therapies for patients with metastatic
melanoma are high dose intravenous interleukin-2 and alpha interferon, another
human cytokine.
Our Clinical Program. We have treated 36 patients in a phase I/II clinical
trial, evaluating Oncophage as a treatment for late stage III and early stage IV
metastatic melanoma. Eighty-three percent of the patients in our trial were
previously treated with chemotherapy, radiotherapy, and alpha interferon. We are
conducting the trial with clinical investigators at the M.D. Anderson Cancer
Center. After surgery to remove a portion of the tumor, the clinical
investigators treated patients with 2.5 micrograms, 25 micrograms or 100
micrograms of Oncophage.
In this trial, the clinical investigators treated 25 patients with stage IV
disease and 11 patients with stage III disease. Among the 25 patients with stage
IV disease, 12 patients were "adjuvant patients." This means that these patients
had all of their detectable melanoma tissue surgically removed before the
clinical investigators treated them with Oncophage. Of these 12 patients, 11
patients are free of disease at a median of 13 months after surgery. Not enough
time has elapsed to appropriately report on the eight patients in the adjuvant
setting with stage III disease.
39
<PAGE> 40
In our melanoma trial, the clinical investigators also treated 16 stage III and
stage IV patients with "residual disease." These are patients who have had only
part of their disease surgically removed, leaving them with visible disease at
the time of Oncophage treatment. In this group of patients, there was one stage
IV patient who, after initial progression of his disease, experienced a mixed
response. This patient's largest metastatic tumor disappeared completely but the
smaller tumors progressed. There were also two other stage IV patients who
experienced stabilization of their disease following initial progression of
disease.
At the time of this analysis, 81% of all the patients who our clinical
investigators treated in this study are alive. We are continuing to analyze the
results from this trial.
To date, the trial has shown Oncophage to be generally safe and well tolerated
by patients. In addition, we have been able to successfully prepare Oncophage
from approximately 92% of melanoma samples we received at our manufacturing
facility for this phase I/II trial. Based on this result, we believe we will be
able to manufacture our product for nearly all melanoma patients from whom a
surgeon can remove an adequate amount of tumor tissue.
In addition to our phase I/II trial at the M.D. Anderson Cancer Center, we are
also currently enrolling patients in a phase II trial for melanoma at the
Istituto dei Tumori in Milan, Italy. We anticipate our clinical investigators
will treat 40 patients in this trial at 5 or 50 micrograms of Oncophage. The
purpose of this trial is to confirm the route of administration of Oncophage.
Colorectal Cancer
Background. Colorectal cancer is cancer of the colon or rectum. The American
Cancer Society estimated that doctors would diagnose about 129,400 new cases of
colorectal cancer in the United States in 1999 and that this disease would kill
approximately 56,600 people during 1999.
For patients whose disease has not spread to other parts of the body, surgery
remains the most common treatment and can be curative in about two thirds of
these cases. For patients whose disease has metastasized to other parts of the
body, treatment options are limited and the patients' prognosis is poor.
Patients with recurrence of advanced disease may have their metastatic lesions
removed by surgery. The median survival for these patients is approximately 12
months. Conventional cancer treatments such as chemotherapy and radiation have
shown limited benefit in treating colorectal cancer.
Our Clinical Program. We have completed enrollment of a 30 patient phase II
clinical trial evaluating Oncophage as a treatment for metastatic colorectal
cancer. We are conducting the trial at the Istituto dei Tumori. The clinical
investigators will treat patients with 2.5 micrograms, 25 micrograms or 100
micrograms of Oncophage after a surgeon removes the patients' metastatic tumors.
We are continuing to analyze the results from this trial. To date, the trial has
shown Oncophage to be generally safe and well tolerated by patients. In
addition, we have successfully prepared Oncophage from 100% of colorectal cancer
samples we received at our manufacturing facility for this trial. Based on this
result, we believe we will be able to manufacture our product for nearly all
colorectal cancer patients whose tumors a surgeon can remove.
Gastric Cancer
Background. Gastric cancer is cancer of the stomach. The American Cancer
Society estimated that doctors would diagnose about 21,900 new cases of gastric
cancer in the United States in 1999 and that the disease would kill
approximately 13,500 people during 1999. The treatment options for gastric
cancer are surgery, chemotherapy and radiation. Biological therapies are
currently in clinical trials. For patients with surgically removable tumors,
improvements in surgical techniques have led to increased survival. Despite
these advances, as well as the development of multi-drug chemotherapy regimens,
the median survival for patients with advanced gastric cancer, according to
published research, is approximately seven months.
40
<PAGE> 41
Our Clinical Program. We are currently enrolling patients in a 30 patient phase
I/II clinical trial evaluating Oncophage as a treatment for metastatic gastric
cancer. We are conducting this trial with clinical investigators at the Johannes
Gutenberg-University Hospital in Mainz, Germany. After clinical investigators
surgically remove a patient's tumor, the clinical investigators treat the
patient with 2.5 micrograms or 15 micrograms of Oncophage. Although enrollment
is still ongoing, to date, the trial has shown Oncophage to be generally safe
and well tolerated by patients. In addition, we have been able to successfully
prepare Oncophage from approximately 71% of gastric cancer samples we received
at our manufacturing facility for this trial. Based on this result, we believe
we will be able to manufacture our product for the majority of gastric cancer
patients whose tumors a surgeon can remove.
Pancreatic Cancer
Background. Pancreatic cancer is the fourth leading cause of cancer death in
the United States. The American Cancer Society estimated that doctors would
diagnose about 28,600 new cases of pancreatic cancer in the United States in
1999 and that the disease would kill approximately 28,600 people during 1999.
The treatment options for pancreatic cancer are surgery and chemotherapy.
Doctors at the Memorial Sloan-Kettering Cancer Center report that patients who
have had tumors surgically removed have a median survival of 14 months. Doctors
treat patients with tumors that cannot be surgically removed, or resected, with
chemotherapy. The median survival time for patients with unresectable disease is
less than six months.
Our Clinical Program. In early 1999, we completed a pilot phase I clinical
trial evaluating Oncophage as a treatment for resectable pancreatic cancer. We
conducted the trial with clinical investigators at the Memorial Sloan-Kettering
Cancer Center and enrolled 15 patients. The clinical investigators treated five
of the 15 patients with five micrograms of Oncophage after doctors had removed
the patient's primary tumor.
Two out of five patients generated a T cell response to their tumor after
treatment with Oncophage. These two patients are alive and disease free at 11
and 22 months, respectively, since surgery. A third patient is known to be free
of disease at 24 months after surgery. The fourth patient is alive with
recurrent disease at 11 months, and the fifth patient died seven months after
surgery.
The trial showed Oncophage to be generally safe and well tolerated by patients.
We successfully prepared Oncophage from 5 of 15 pancreatic cancer samples we
received in our manufacturing facility. We were not able to prepare Oncophage
from the remaining tumor samples due to the presence of enzymes in the
pancreatic tissue that break down proteins, including heat shock proteins. Based
upon our process development advances, we anticipate that a modified process
will improve our rate of success for purifying Oncophage from pancreatic tumors.
Non-Hodgkin's Lymphoma
Background. Non-Hodgkin's lymphoma is cancer that originates in lymph tissue.
The American Cancer Society estimated that doctors would diagnose about 56,800
new cases of non-Hodgkin's lymphoma in the United States in 1999 and that the
disease would kill approximately 25,700 people during 1999. Approximately 40% of
patients with non-Hodgkin's lymphoma have low grade indolent disease, which is a
slow growing, often fatal, lymphoma.
Doctors have traditionally treated patients with non-Hodgkin's lymphoma with
chemotherapy. Recently, the FDA approved one new antibody therapy for low grade
non-Hodgkin's lymphoma.
Our Clinical Program. We are in the process of initiating a 35 patient phase II
clinical trial evaluating Oncophage as a treatment for low grade indolent
non-Hodgkin's lymphoma. We will conduct this trial with clinical investigators
at the M.D. Anderson Cancer Center. We anticipate that the clinical
investigators will treat patients with 25 micrograms of Oncophage after a
surgeon removes the patients' tumor tissue.
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<PAGE> 42
Sarcoma
Background. Soft tissue sarcomas are cancerous tumors that can develop from
fat, muscle, nerve, joint, blood vessel or deep skin tissues. The American
Cancer Society estimated that doctors would diagnose about 7,800 new cases of
soft tissue sarcomas in the United States in 1999 and that the disease would
kill approximately 4,400 people during 1999.
Doctors treat sarcoma with surgery, chemotherapy or targeted radiotherapy. For
resectable disease, doctors perform surgery and administer chemotherapy or
targeted radiotherapy as follow up treatments. For unresectable disease, doctors
treat patients with a combination of chemotherapy and radiotherapy.
Our Clinical Program. We are in the process of initiating a 35 patient phase II
clinical trial evaluating Oncophage as a treatment for soft tissue sarcomas. We
will conduct the trial with clinical investigators at Memorial Sloan-Kettering
Cancer Center and may expand it to include other sites. We anticipate that the
clinical investigators will treat patients with 25 micrograms of Oncophage after
a surgeon removes the patients' tumor tissue.
Other Cancer Immunotherapeutics
In addition to Oncophage, we are currently researching several other autologous
cancer immunotherapeutics using different heat shock proteins, including
HSPPC-70, HSPPC-90, and HSPPC-56. These immunotherapeutics have demonstrated
efficacy in animal cancer models.
OUR INFECTIOUS DISEASE IMMUNOTHERAPEUTICS
Background. Infectious diseases are illnesses caused by microorganisms, or
pathogens, like viruses, bacteria and parasites, and include tuberculosis,
hepatitis, genital herpes and HIV. While doctors use antiviral agents and
antibiotics to treat a number of viral and bacterial diseases effectively,
medical professionals are concerned about the emergence of new strains of
pathogens that have developed resistance to all available drugs.
Our Approach. Our immunotherapeutics for treating infectious diseases will
consist of heat shock proteins bound to peptides that are produced by the
pathogen causing the infection. Typically, each infectious disease is caused by
a specific pathogen. Consequently, our infectious disease immunotherapeutics
will be common to all patients with a particular infection and will not be
patient-specific. We currently produce these immunotherapeutics from cells
infected with the target pathogen. This manufacturing procedure has enabled us
to test our immunotherapeutics in preclinical studies and should enable us to
produce sufficient quantities to begin human clinical trials. Another technique
to manufacture our immunotherapeutics involves binding specific peptides with
heat shock proteins in vitro. We can generate the peptides in microorganisms or
produce them synthetically.
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<PAGE> 43
OUR INFECTIOUS DISEASE IMMUNOTHERAPEUTIC MANUFACTURING PROCESS
[CHART]
<TABLE>
<CAPTION>
STARTING MATERIAL MANUFACTURING FINAL PRODUCT
<S> <C> <C>
Mammalian cell lines Heat shock protein-peptide Product frozen
infected with pathogen complexes (purified from cell and shipped to
of interest and grown lines or produced in vitro) hospital/clinic for
in bioreactors patient treatment
or
Heat shock proteins
and pathogen specific
peptides produced
synthetically or in
microorganisms
</TABLE>
Genital Herpes. Genital herpes is a contagious viral infection that affects an
estimated 45 million Americans. Doctors estimate that as many as 500,000 new
cases may occur each year in the United States. Genital herpes is currently
treated with palliative antiviral agents that reduce further replication of the
virus. The challenge of antiviral therapy lies not only in treatment of the
symptoms during the first and recurrent episodes but also in the long-term
suppression of the herpes virus in patients with frequent recurrences. We expect
to file an IND for this indication in 2000.
OUR AUTOIMMUNE DISORDER IMMUNOTHERAPEUTIC
Background. Autoimmune disorders result from an inappropriate immune response
that targets and destroys normal tissue. While researchers have not definitively
determined what triggers autoimmune responses, many believe that both genetic
and environmental factors are probably involved in this process. Several
autoimmune disorders, including diabetes and multiple sclerosis, result in the
proliferation of misdirected T cells that attack normal tissues. We believe that
a therapeutic product that can turn off misdirected T cell responses could treat
these disorders.
Our Approach. We have demonstrated in animal models that heat shock proteins
administered at higher doses than those required for treating cancer and
infectious diseases can turn off misguided T cells that destroy healthy tissue
in animals with some autoimmune disorders. We are currently researching the
application of heat shock proteins to treat autoimmune diseases like diabetes
and multiple sclerosis. The source of heat shock proteins used in our autoimmune
disorders immunotherapeutic will be human cells. Our immunotherapeutic could
also be made using recombinant DNA techniques.
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<PAGE> 44
OUR AUTOIMMUNE DISORDER IMMUNOTHERAPEUTIC MANUFACTURING PROCESS
[CHART]
<TABLE>
<CAPTION>
Starting Material Manufacturing Final Product
<S> <C> <C>
Mammalian cells Heat shock protein-peptide Product frozen and
or complexes purified shipped to
recombinant DNA from cell lines hospital/clinic for
or patient treatment
recombinantly produced
</TABLE>
MANUFACTURING
We manufacture our own immunotherapeutic products in a 30,225 square foot
manufacturing and research and development facility located in Woburn,
Massachusetts. We are in the process of preparing this facility for the
commercialization of Oncophage.
Our process development group is currently working on improving the process by
which we manufacture heat shock protein-based immunotherapeutics. Efforts in
this area to date have resulted in a 50% reduction in the time required to
purify Oncophage from individual patients' tumors and a 40% increase in the
quantity of Oncophage we can produce from tumor tissue. These efforts in our
cancer program should also benefit preparation of our heat shock protein-based
immunotherapeutics for treatment of infectious diseases.
SALES AND MARKETING
To commercially market our immunotherapeutic products once we obtain the
necessary regulatory approvals, we must either develop our own sales and
marketing force or enter into arrangements with third parties. Currently, our
sales and marketing plans consist of the following:
- Commercialize cancer immunotherapeutics in the United States
through our own sales force. We believe that we can build a United
States sales force to market our cancer immunotherapeutics due to
the concentration of the United States oncology market.
- Form collaborations with pharmaceutical companies for
commercializing cancer immunotherapeutics outside the United
States. For example, we have entered into an agreement with
Sigma-Tau Industrie Farmaceutiche Riunite S.p.A., under which they
have agreed to pay for two clinical trials in return for rights
which include an option to enter into an agreement to market
Oncophage in Italy, Spain, Portugal and Switzerland. We have also
signed an agreement with Medison Pharma Ltd. for marketing
Oncophage in Israel.
- Form collaborations with pharmaceutical companies for infectious
diseases and autoimmune disorders. Unlike cancer, the number of
doctors and health care institutions prescribing treatments for
infectious diseases and autoimmune disorders is large and
fragmented, and we will need a large sales force to effectively
market our products.
OUR INTELLECTUAL PROPERTY PORTFOLIO
We devote significant resources to protecting and expanding our intellectual
property portfolio. We seek to protect our core technologies through a
combination of patents, trade secrets and know-how. As a result of an exclusive
worldwide license with Fordham University and one with Mount Sinai School of
Medicine,
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<PAGE> 45
we have exclusive rights to nine issued U.S. patents, and foreign counterpart
patents and patent applications, relating to our heat shock protein technology.
Prior to directing the Center for Immunotherapy of Cancer at the University of
Connecticut, Dr. Srivastava, the Chairman of our Scientific Advisory Board, was
an assistant professor of immunology at Mount Sinai School of Medicine, and,
then, a professor of immunology at Fordham University.
We also have licensed rights to 47 pending U.S. patent applications, and
corresponding foreign counterpart patents and applications, from Mount Sinai
School of Medicine of New York University, Fordham University, Duke University
and the University of Miami. Under the license agreements with these
institutions, we have exclusive, worldwide rights to inventions using heat shock
proteins in the treatment and prevention of cancer, infectious diseases,
autoimmune disorders and other indications. If we commercialize any of the
inventions, we will pay the licensors a royalty on sales of the commercialized
product. In addition, pursuant to a research agreement with the University of
Connecticut Health Center, we will fund the laboratory directed by Dr.
Srivastava at the University through December 31, 2002. The agreement calls for
payments to the University totaling a minimum of $5,000,000, payable in
quarterly installments of $250,000. In return, we have an option to obtain an
exclusive license to new inventions as that term is defined in the research
agreement, with the royalty rates and other terms to be determined by
negotiation between the parties. We also have an option to obtain an exclusive
license to certain types of "improvement" inventions as that term is defined in
the research agreement, at already-determined royalty rates, but with the other
terms to be determined by negotiation between the parties. These options must be
exercised within 180 days from the date of filing a U.S. patent application on
each such invention. To date, we have exercised options to license three patent
applications.
It is worth noting that:
- patent applications in the United States are maintained in secrecy
until patents are issued;
- patent applications in other countries generally are not published
until 18 months after they are first filed in any country;
- publication of technological developments in the scientific or
patent literature often lags behind the date of these developments;
and
- searches of prior art may not reveal all relevant prior inventions.
Although we have licensed nine issued United States patents and 43 pending
United States patent applications, we cannot be certain that our licensors'
inventors were the first to invent the subject matter covered by these patent
and patent applications or that they were the first to file patent applications
for those inventions or that a court or patent authority will not determine that
these patent rights are invalid or unpatentable.
REGULATORY CONSIDERATIONS
Governmental authorities in the United States and other countries extensively
regulate the preclinical and clinical testing, manufacturing, labeling, storage,
record keeping, advertising, promotion, export, marketing and distribution,
among other things, of our immunotherapeutics. In the United States, the FDA
under the Federal Food, Drug, and Cosmetic Act, the Public Health Service Act
and other federal statutes and regulations subjects pharmaceutical products to
rigorous review. If we do not comply with applicable requirements we may be
fined, our products may be recalled or seized, our production may be totally or
partially suspended, the government may refuse to approve our marketing
applications or allow us to distribute our products, and we may be criminally
prosecuted. The FDA also has the authority to revoke previously granted
marketing authorizations.
In order to obtain approval of a new product from the FDA, we must, among other
requirements, submit proof of safety and efficacy as well as detailed
information on the manufacture and composition of the product. In most cases,
this proof entails extensive preclinical, clinical and laboratory tests. This
testing, the preparation of necessary applications and processing of those
applications by the FDA are expensive
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and typically take several years to complete. We cannot assure that the FDA will
act quickly or favorably in reviewing these applications, and we may encounter
significant difficulties or costs in our efforts to obtain FDA approvals that
could delay or preclude us from marketing any products we may develop. The FDA
may also require post-marketing testing and surveillance to monitor the effects
of approved products or place conditions on any approvals that could restrict
the commercial applications of these products. Regulatory authorities may
withdraw product approvals if we fail to comply with regulatory standards or if
we encounter problems following initial marketing. With respect to patented
products or technologies, delays imposed by the governmental approval process
may materially reduce the period during which we will have the exclusive right
to exploit them.
The first stage of the FDA approval process for a new biologic or drug involves
completion of preclinical studies and the submission of the results of these
studies to the FDA, together with proposed clinical protocols, manufacturing
information, analytical data and other information, in an investigational new
drug application, which must become effective before human clinical trials may
commence. The investigational new drug application is automatically effective 30
days after receipt by the FDA, unless the FDA before that time requests an
extension to review the application, or raises concerns or questions about the
conduct of the trials as outlined in the application. In the latter case, the
sponsor of the application and the FDA must resolve any outstanding concerns
before clinical trials can proceed. We cannot guarantee that submission of an
investigational new drug application will result in the FDA authorizing us to
commence clinical trials in any given case.
Preclinical studies involve laboratory evaluation of product characteristics and
animal studies to assess the efficacy and safety of the product. The FDA
regulates preclinical studies under a series of regulations called the current
"Good Laboratory Practices" regulations. If the sponsor violates these
regulations, in some cases, the FDA may invalidate the studies and require that
the sponsor replicate those studies.
After the investigational new drug application becomes effective, a sponsor may
commence human clinical trials. The sponsor typically conducts human clinical
trials in three sequential phases, but the phases may overlap. In phase I
trials, the sponsor tests the product in a small number of patients or healthy
volunteers, primarily for safety at one or more doses. In phase II, in addition
to safety, the sponsor evaluates the efficacy of the product in a patient
population somewhat larger than phase I trials. Phase III trials typically
involve additional testing for safety and clinical efficacy in an expanded
population at geographically dispersed test sites. The sponsor must submit to
the FDA a clinical plan, or "protocol," accompanied by the approval of the
institution participating in the trials, prior to commencement of each clinical
trial. The FDA may order the temporary or permanent discontinuation of a
clinical trial at any time.
The sponsor must submit to the FDA the results of the preclinical and clinical
testing, together with, among other things, detailed information on the
manufacture and composition of the product, in the form of a new drug
application or, in the case of a biologic, a biologics license application. In a
process which generally takes several years, the FDA reviews this application
and, when and if it decides that adequate data is available to show that the new
compound is both safe and effective and that other applicable requirements have
been met, approves the drug or biologic for marketing. The amount of time taken
for this approval process is a function of a number of variables, including the
quality of the submission and studies presented, the potential contribution that
the compound will make in improving the treatment of the disease in question,
and the workload at the FDA. We cannot guarantee that any of our
immunotherapeutics will successfully proceed through this approval process or
that the FDA will approve them in any specific period of time, or at all.
Congress enacted the Food and Drug Administration Modernization Act of 1997, in
part, to ensure the availability of safe and effective drugs, biologics and
medical devices by expediting the FDA review process for new products. The
Modernization Act establishes a statutory program for the approval of fast track
products, including biologics. A fast track product is defined as a new drug or
biologic intended for the treatment of a serious or life-threatening condition
that demonstrates the potential to address unmet
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<PAGE> 47
medical needs for this condition. Under the fast track program, the sponsor of a
new drug or biologic may request the FDA to designate the drug or biologic as a
fast track product at any time during the clinical development of the product.
The Modernization Act specifies that the FDA must determine if the product
qualifies for fast track designation within 60 days of receipt of the sponsor's
request. The FDA can base approval of a marketing application for a fast track
product on an effect on a clinical endpoint or on another endpoint that is
reasonably likely to predict clinical benefit. The FDA may subject approval of
an application for a fast track product to:
- post-approval studies to validate the surrogate endpoint or confirm
the effect on the clinical endpoint; and
- prior review of all promotional materials.
In addition, the FDA may withdraw its approval of a fast track product on a
number of grounds, including the sponsor's failure to conduct any required
post-approval study with due diligence.
If a preliminary review of the clinical data suggests that a fast track product
may be effective, the FDA may initiate review of sections of a marketing
application for a fast track product before the sponsor completes the
application. This rolling review is available if the applicant provides a
schedule for submission of remaining information and pays applicable user fees.
However, the time periods specified under the Prescription Drug User Fee Act
concerning timing goals to which the FDA has committed in reviewing an
application, do not begin until the sponsor submits the application.
We may request fast track designation for our immunotherapeutics. We cannot
predict whether the FDA will grant that designation, nor can we predict the
ultimate impact, if any, of the fast track process on the timing or likelihood
of FDA approval of our immunotherapeutics.
The FDA may, during its review of a new drug application or biologics license
application, ask for additional test data. If the FDA does ultimately approve
the product, it may require post-marketing testing, including potentially
expensive phase IV studies, and surveillance to monitor the safety and
effectiveness of the drug. In addition, the FDA may in some circumstances impose
restrictions on the use of the drug that may be difficult and expensive to
administer, and may require prior approval of promotional materials.
Before approving a new drug application or biologics license application, the
FDA will inspect the facilities at which the product is manufactured and will
not approve the product unless the manufacturing facilities are in compliance
with current Good Manufacturing Practices. In addition, the manufacture,
holding, and distribution of a product must be in compliance with current Good
Manufacturing Practices. Manufacturers must continue to expend time, money and
effort in the area of production and quality control and record keeping and
reporting to ensure full compliance with those requirements. The labeling,
advertising, promotion, marketing and distribution of a drug or biologic product
must be in compliance with FDA regulatory requirements. Failure to comply with
applicable requirements can lead to the FDA demanding that production and
shipment cease, and, in some cases, that the manufacturer recall products, or to
enforcement actions that can include seizures, injunctions and criminal
prosecution. These failures can also lead to FDA withdrawal of approval to
market the product.
We are also subject to regulation by the Occupational Safety and Health
Administration and the Environmental Protection Agency and to regulation under
the Toxic Substances Control Act, the Resource Conservation and Recovery Act and
other regulatory statutes, and may in the future be subject to other federal,
state or local regulations. Either or both of OSHA or the EPA may promulgate
regulations that may affect our research and development programs. We are unable
to predict whether any agency will adopt any regulation which could have a
material adverse effect on our operations.
Sales of pharmaceutical products outside the United States are subject to
foreign regulatory requirements that vary widely from country to country.
Whether or not we have obtained FDA approval, we must obtain
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<PAGE> 48
approval of a product by comparable regulatory authorities of foreign countries
prior to the commencement of marketing the product in those countries. The time
required to obtain this approval may be longer or shorter than that required for
FDA approval. The foreign regulatory approval process includes all the risks
associated with FDA regulation set forth above as well as country-specific
regulations.
COMPETITION
Competition in the pharmaceutical and biotechnology industries is intense. Many
pharmaceutical or biotechnology companies have products on the market and are
actively engaged in the research and development of products for the treatment
of cancer, infectious diseases and autoimmune disorders. In addition, many
competitors focus on immunotherapy as a treatment for cancer, infectious
diseases and autoimmune disorders. In particular, some of these companies are
developing autologous cancer vaccines. Others are focusing on developing heat
shock protein products. We compete for funding, access to licenses, personnel
and third-party collaborations. In addition, many competitors have substantially
greater financial, manufacturing, marketing, sales, distribution and technical
resources, and more experience in research and development, clinical trials and
regulatory matters, than we do. A competing company developing, or acquiring
rights to, a more efficacious therapeutic product for the same diseases targeted
by us, or one which offers significantly lower costs of treatment, could render
our products noncompetitive or obsolete.
Academic institutions, governmental agencies and other public and private
research institutions conduct significant amounts of research in biotechnology,
medicinal chemistry and pharmacology. These entities have become increasingly
active in seeking patent protection and licensing revenues for their research
results. They also compete with us in recruiting and retaining skilled
scientific talent.
FACILITIES
We lease approximately 30,225 square feet of laboratory space in Woburn,
Massachusetts under a lease agreement that terminates in August 2003. We have an
option to renew for an additional five-year period with the landlord's consent.
We maintain our executive offices in New York, New York, in an office building
in which we lease approximately 8,000 square feet from an affiliated party. The
agreement terminates in December 2006. You should read the discussion under
"Certain Relationships and Related Transactions" regarding our executive
offices.
EMPLOYEES
As of December 31, 1999, we had 71 employees, of whom 11 have Ph.D.s and one has
an M.D.; three are clinical staff, 21 are manufacturing and quality control
staff, 24 are research and development staff, and 23 are management or
administrative staff. None of our employees is subject to a collective
bargaining agreement. We believe that we have good relations with our employees.
LEGAL PROCEEDINGS
Other than our opposition of a European patent discussed under "Risk Factors,"
we are not currently a party to any material legal proceedings or claims. You
should read the discussion of our opposition of this European patent under "Risk
Factors."
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<PAGE> 49
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
Set forth below is certain information regarding our executive officers,
directors and key employees, including their age as of January 31, 2000:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
Garo Armen, Ph.D......................... 47 Chairman of the Board, Chief Executive
Officer
Pramod Srivastava, Ph.D.................. 44 Director, Chairman of Scientific Advisory
Board
Gamil de Chadarevian..................... 48 Vice Chairman of the Board, Executive
Vice President International
Elma Hawkins, Ph.D....................... 43 Senior Vice President
Dirk Reitsma, M.D........................ 50 Vice President of Clinical Affairs
Neal Gordon, Ph.D........................ 38 Vice President of Operations
Donald Panoz............................. 64 Director, Honorary Chairman
Noubar Afeyan, Ph.D.(1)(2)............... 37 Director
Edward Brodsky(1)........................ 70 Director
Tom Dechaene(2).......................... 40 Director
Martin Taylor(1)(2)...................... 47 Director
</TABLE>
- ---------------------------------------------
(1)Member of the Compensation Committee
(2)Member of the Audit Committee
The size of the board of directors is currently set at eight members.
Our certificate of incorporation provides for a classified board of directors
consisting of three classes, with each class being as nearly equal in number as
possible. The term of one class expires and their successors are elected for a
term of three years at each annual meeting of the stockholders. We have
designated three class I directors, Messrs. de Chadarevian, Brodsky and Taylor;
three class II directors, Messrs. Panoz, Afeyan and Srivastava; and two class
III directors, Messrs. Armen and Dechaene. These class I, class II and class III
directors will serve until the annual meetings of stockholders to be held in
2000, 2001 and 2002, respectively, and until their respective successors are
duly elected and qualified, or until their earlier resignation or removal. The
board of directors appoints officers until the next annual meeting of the board
of directors.
GARO ARMEN, PH.D. co-founded Antigenics in 1994 and has been the Chairman of the
board and Chief Executive Officer since inception. Dr. Armen was previously a
Senior Vice President of Research for Dean Witter Reynolds, focusing on the
chemical and pharmaceutical industries. Dr. Armen has also served as an
Associate Professor at the Merchant Marine Academy and as a research associate
at the Brookhaven National Laboratory. He currently serves as a director of Elan
Corporation, Plc. and Color Kinetics Inc. Dr. Armen received his Ph.D. degree in
physical chemistry from the City University of New York in 1979. Since 1990, Dr.
Armen has been the managing general partner of Armen Partners, L.P., an
investment partnership specializing in public and private healthcare and
biotechnology investments.
PRAMOD SRIVASTAVA, PH.D. co-founded Antigenics in 1994 and has served as the
Chairman of the scientific advisory board since inception. Dr. Srivastava is the
Director of the Center for Immunotherapy of Cancer and Infectious Diseases at
the University of Connecticut. Dr. Srivastava has held positions at Fordham
University and the Mount Sinai School of Medicine. He performed his postdoctoral
training at Yale University and the Sloan-Kettering Institute for Cancer
Research. Dr. Srivastava serves on the Scientific Advisory Council of the Cancer
Research Institute, New York, and has been a member of the Experimental
Immunology Study Section of the National Institutes of Health of the United
States
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<PAGE> 50
Government since 1994. Dr. Srivastava is a past recipient of the First
Independent Research Support & Transition Award of the National Institutes of
Health (1987), the Irma T. Hirschl Scholar Award (1988), the Investigator Award
of the Cancer Research Institute, New York (1991), the Mildred Scheel
Lectureship (1994), and the Sigma Tau Foundation Speakership (1996). In 1997, he
was inducted into the Roll of Honor of the International Union against Cancer
and was listed in the Who's Who in Science and Engineering. He is among the
twenty founding members of the Academy of Cancer Immunology. Dr. Srivastava
earned his Ph.D. in Biochemistry from the Centre for Cellular and Molecular
Biology, Hyderabad, India. Dr. Srivastava is a director of Iconisys, Inc.
GAMIL DE CHADAREVIAN has served as the Vice Chairman of the Board since 1995 and
as Executive Vice President International since 1998. Until April of 1998, he
was Managing Director of Special Projects at Alza International, responsible for
creating new business opportunities in Europe. From 1992 to 1993, Mr. de
Chadarevian was the Vice President of Corporate Development for Corange London
Limited. Prior to 1992, Mr. de Chadarevian held positions at Pasfin Servizi
Finanziara SpA, GEA Consulenza and Credit Suisse. He is also co-founder and
serves as an advisor to several private health care companies in the United
States and Europe. Mr. de Chadarevian received a Lic. Oec. Publ. Degree from the
University of Zurich in Switzerland. Mr. de Chadarevian is the co-founder and
currently the Vice Chairman of Iconisys, Inc. and CambriaTech Holding S.A.
ELMA HAWKINS, PH.D. has served as Senior Vice President since August 1998. From
July 1996 through August 1998, Dr. Hawkins served as our Chief Operating
Officer. Prior to her employment with us, Dr. Hawkins served in a number of
senior positions at Genzyme Corporation, including Director of Corporate
Development. Dr. Hawkins has also held positions in preclinical and clinical
research at Warner-Lambert/Parke-Davis and at the Center for the Study of Drug
Development at Tufts Medical School. Dr. Hawkins holds a Ph.D. in Medicinal
Chemistry from the University of Alabama and an M.B.A. from Boston University.
Dr. Hawkins is a director of Nalari Computing Corporation.
DIRK REITSMA, M.D. has served as Vice President of Clinical Affairs and Medical
Director since April 1997. From 1990 to 1997, Dr. Reitsma was employed by
Ciba-Geigy, where he managed the clinical development of several biologic
compounds and other new drugs. Dr. Reitsma was responsible for the phase III
trials of Aredia in breast cancer, and for their regulatory submissions to the
FDA. Prior to that, Dr. Reitsma was employed by Organon in Rockville, Maryland,
where he worked on various biologics, including human monoclonal antibodies and
on the submission of the regulatory filing for Bacillus Calmette Guerin, also
known as BCG, for superficial bladder cancer. Dr. Reitsma practiced internal
medicine and oncology at the Bergwegiekenhuis in Rotterdam prior to joining
Organon. He received his M.D. from the Erasmus University in Rotterdam, The
Netherlands.
NEAL GORDON, PH.D. has served as Vice President of Operations since May 1999.
Prior to this position he served as Vice President Process Development from July
1998. Previously, he was Senior Director of Chromatography R&D at PerSeptive
Biosystems, a division of PE Corp., formerly Perkin-Elmer Corporation. Over his
ten-year career at PerSeptive, Dr. Gordon was involved in the development and
application of innovative technologies for the purification and analysis of
biopolymers, most notably the development of the BioCAD(R) Chromatography
Workstation. Dr. Gordon received his Ph.D. in Biochemical Engineering from the
Massachusetts Institute of Technology and a Bachelors degree in Chemical
Engineering from McGill University.
DONALD PANOZ has been a director since 1995 and is the Honorary Chairman of the
board of directors. In 1969, Mr. Panoz founded Elan Corporation, Plc., a
pharmaceutical research and development company. Mr. Panoz was Chairman and
Chief Executive Officer of Elan Corporation from 1969 until his retirement in
1996. Mr. Panoz is currently a Lecturer of Pharmacy at the University of
Georgia. In January 1995, Mr. Panoz was named Honorary Irish Consul General to
Bermuda. Mr. Panoz attended Pittsburgh University and Duquesne University in
Pennsylvania.
NOUBAR AFEYAN, PH.D. has been a director since 1998. Dr. Afeyan is Chairman and
CEO of the NewcoGen Group and is also a partner at One Liberty Ventures. Dr.
Afeyan was Senior Vice President
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<PAGE> 51
and Chief Business Officer of PE Corp. until August 1999. Prior to its
acquisition by PE Corp., Dr. Afeyan was the Chairman and Chief Executive Officer
of PerSeptive Biosystems, a company that he founded in 1987 to develop,
manufacture and market instruments and chemical reagents used to purify, analyze
and synthesize biomolecules. Dr. Afeyan served as Chairman of the Board of
ChemGenics Pharmaceuticals, Inc. during 1996 and 1997. He is also a member of
the board of directors of two private companies. Dr. Afeyan received his
undergraduate degree in Chemical Engineering from McGill University and his
Ph.D. in Biochemical Engineering from the Massachusetts Institute of Technology.
EDWARD BRODSKY has been a director since 1995. Mr. Brodsky has been a partner of
the law firm of Proskauer Rose LLP since 1992 and was previously a partner at
the firm of Spengler Carlson Gubar Brodsky & Frisching. Mr. Brodsky and his firm
represent us in legal matters. Mr. Brodsky is currently a director of Giant
Cement Holding, Inc. and UIS, Inc. He received his LL.B. from New York
University School of Law.
TOM DECHAENE has been a director since 1999. Mr. Dechaene is currently the Chief
Financial Officer of SurfCast, Inc. He was with Deutsche Bank from 1991 through
1999, most recently as a director in the Principal Investments Group within the
Equity Capital Markets division. Mr. Dechaene is a director of Color Kinetics
Inc., Veridicom, Inc., Xaim, Inc. and Iconisys, Inc. Mr. Dechaene holds a law
degree from Ghent University, Belgium, a degree in Applied Economics from the
University of Antwerp and an MBA from INSEAD, France.
MARTIN TAYLOR has been a director since June 1999. From 1993 until 1998, Mr.
Taylor held the position of Chief Executive Officer of Barclays Bank Plc. Mr.
Taylor is presently a member of the Council for Science and Technology and,
since November 1999, has been chairman of the W.H. Smith Group Plc. In October
1999, he became an advisor to Goldman Sachs International. He was educated at
Balliol College, Oxford University.
SCIENTIFIC ADVISORY BOARD
Our scientific advisory board is comprised of internationally recognized
scientists in the fields of immunology, oncology, genetics and drug delivery.
The scientific advisory board advises our management on strategic issues related
to our scientific development program. Dr. Srivastava chairs the board which
consists of the following other individuals:
JOSHUA LEDERBERG, PH.D. has been a member of the scientific advisory board since
1996 and is the board's Honorary Chairman. In 1958, at the age of 33, Dr.
Lederberg received the Nobel Prize in Physiology of Medicine for his work in the
field of bacterial genetics. Dr. Lederberg is currently the Sackler Foundation
Scholar and Professor- and President-Emeritus at The Rockefeller University, in
New York City, where he is researching the interrelationships of DNA
conformation and mutagenesis. Previously, Dr. Lederberg was a professor of
genetics at Stanford University. A member of the National Academy of Sciences
and a charter member of its Institute of Medicine, Dr. Lederberg has served as
chairman of the President's Cancer Panel and has chaired a comprehensive study
of emergent infections sponsored by the Institute of Medicine, intended to
counteract complacency about the threats from many infectious diseases. He has
also received the United States National Medal of Science. Dr. Lederberg has
served on the board of the Procter & Gamble Co., and continues as a part-time
consultant to several financial and pharmaceutical research and development
institutions. He received his Ph.D. from Yale University.
SIR WALTER BODMER, PH.D. has been a member of the scientific advisory board
since 1996 and he is currently the board's Vice Chairman. Sir Walter currently
serves as the Principal of Herford College, Oxford University. Previously, he
was the Director-General of the Imperial Cancer Research Fund and was Director
of Research at the Fund from 1979 to 1991. He is a Foreign Associate of the
United States National Academy of Sciences and a Foreign Honorary Member of the
American Academy of Arts and Sciences. He is also a Trustee of Sir John Soane's
Museum and the first President of the International Federation of Associations
for the Advancement of Science and Technology. In 1995, Sir Walter was appointed
Chancellor of the University of Salford. Sir Walter was the second President of
the Human
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<PAGE> 52
Genome Organization and is a past President of the British Association for the
Advancement of Science and of the Royal Statistics Society. He has served as
Chairman of the BBC Science Consultative Group and as Vice-President of the
Royal Institution. Sir Walter has recently completed his term as Chairman of the
Trustees of the Natural History Museum, having served as a Trustee for ten
years. He received a Ph.D. from Cambridge University.
HANS-GEORG RAMMENSEE, PH.D. has been a member of the scientific advisory board
since 1999. Dr. Rammensee is currently the Chair of Immunology at the University
of Tubingen, where he has served in various capacities since 1987. From 1993
until 1996, he was Head, Department of Tumorvirus-Immunology, German Cancer
Research Center, Heidelberg, where he was also on the faculty of Theoretical
Medicine. From 1987 until 1993, Dr. Rammensee was Head, Laboratory for
Immunology at the Max Planck Institute for Biology. Since 1987, Dr. Rammensee
has been Coeditor of Immunogenetics and, since 1991, Coeditor of European
Journal of Immunology. Dr. Rammensee is also Speaker for the Graduate Committee
for Cell Biology in Medicine at the University of Tubingen and a Member of the
Evaluation Committee for the Cooperation Program in Cancer Research between the
German Cancer Research Center in Heidelberg and the Ministry of Science in
Israel. From 1992 through 1997, Dr. Rammensee was a Member of the
"Hinterzartener Kreis", a committee of the German Research Council. Dr.
Rammensee has been the recipient of numerous awards including the Heinz Maier
Leibnitz Award of the German Federal Ministry of Science (1988), the Wilhelm and
Maria Meyenburg Award of the German Cancer Research Center (1991), the Gottfried
Wilhelm Leibnitz Award of the German Research Council (1991), the Avery
Landsteiner Award of the Society for Immunology (1992), the Robert Koch Award of
the Robert Koch Foundation (1993), the Paul Ehrlich and Ludwig Darmstaedter
Award of the Paul Ehrlich Foundation (1996) and the Rose Payne Distinguished
Scientist Award of the American Society for Histocompatibility and
Immunogenetics (1997). Dr. Rammensee received his Ph.D. from the University of
Tubingen in 1982, where he studied minor histocompatibility antigens in immune
response.
FELIX THEEUWES, PH.D. has been a member of the scientific advisory board since
1996. Dr. Theeuwes is currently the Chairman and Chief Scientist of Durect
Corporation, which is an affiliate of Alza Corporation. Prior to his current
position, Dr. Theeuwes was Chief Scientist at Alza Corporation. Dr. Theeuwes was
with Alza from 1970, directing research, technology development and product
development for a variety of controlled drug delivery systems. Dr. Theeuwes
holds more than 220 United States patents and has published more than 80
articles and book chapters. In 1980, Dr. Theeuwes was named Inventor of the Year
by the Peninsula Patent Law Association. In 1983, he was the recipient of the
Award for the Advancement of Industrial Pharmacy. He was the Busse Lecturer at
the University of Wisconsin in 1981 and, in 1985, the Third Annual Sidney
Riegelman Lecturer at the University of California, San Francisco. He is a
Fellow of the American Association of Pharmaceutical Scientists, and, in 1993,
he became the first recipient of Alza Corporation's Founder's Award. Dr.
Theeuwes is currently a member of the board of directors of both Vinifera, Inc.
and Durect Corporation. He received his undergraduate and graduate education in
physics at the University of Leuven, Belgium, with a D.Sc. degree in 1966. From
1966 to 1970 he served as a post-doctoral fellow and visiting research assistant
professor in the Department of Chemistry, University of Kansas.
AUDIT COMMITTEE
The audit committee makes recommendations to the board of directors about the
selection of independent auditors, reviews the results and scope of the audit
and other services provided by our independent auditors, and evaluates our
internal controls. The audit committee consists of Messrs. Taylor, Dechaene and
Afeyan.
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<PAGE> 53
COMPENSATION COMMITTEE
The compensation committee reviews and approves the compensation and benefits
for our executive officers, administers our stock option plans and makes
recommendations to the board of directors about compensation matters. The
compensation committee consists of Messrs. Taylor, Brodsky and Afeyan.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to or earned during the
fiscal years ended December 31, 1998 and 1999 by our chief executive officer and
all of our other executive officers whose salary and bonus exceeded $100,000. We
refer to these persons as the named executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -----------------
----------------------- SHARES UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
- --------------------------- ---- ---------- --------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Garo H. Armen, Ph.D., Chief
Executive Officer.............. 1999 $150,000 -- 254,682 $50,000(2)
1998 -- -- -- --
Elma Hawkins, Ph.D., Senior Vice
President...................... 1999 $200,000 $25,000 -- --
1998 $200,000 $20,000 -- --
Neal Gordon, Ph.D., Vice
President of Operations........ 1999 $136,282 $20,000 9,634 --
1998 $ 57,272(1) $28,750 18,924 --
</TABLE>
- ---------------------------------------------
(1)Dr. Gordon commenced employment with Antigenics in July 1998.
(2)Represents the premium we paid for an executive split-dollar life insurance
policy. Under this policy, under some circumstances, we would be entitled to
a refund of the premiums paid.
1999 OPTION GRANTS
The following table contains certain information regarding stock option grants
during the twelve months ended December 31, 1999 by us to the named executive
officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES PERCENT OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE OR BASE FOR OPTION TERM(1)
OPTIONS TO EMPLOYEES PRICE EXPIRATION ----------------------------------
NAME GRANTED(#) IN FISCAL YEAR ($/SHARE) DATE 0%($) 5%($) 10%($)
- ---- ---------- ---------------- ---------------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Garo H. Armen, Ph.D.,
Chief Executive
Officer................ 254,682 83.3% $12.07 2/09-4/09 -- $4,393,291 $8,816,420
Elma Hawkins, Ph.D.,
Senior Vice
President.............. -- -- -- -- -- -- --
Neal Gordon, Ph.D., Vice
President of
Operations............. 9,634 3.2% $ 6.50 1/09 $110,791 $ 219,849 $ 387,165
</TABLE>
- ---------------------------------------------
(1)The dollar amounts under these columns are the result of calculations at
rates set by the SEC and, therefore, are not intended to forecast possible
future appreciation, if any, in the price of the underlying common stock. The
potential realizable values are calculated on the basis of an initial public
offering price of $18.00 per share and assuming that the market price
appreciates from this price at the indicated rate for the entire term of each
option and that each option is exercised and sold on the last day of its term
at the appreciated price.
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<PAGE> 54
OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table provides information about the number of shares issued upon
option exercises by the named executive officers during the year ended December
31, 1999, and the value realized by the named executive officers. The table also
provides information about the number and value of options held by the named
executive officers at December 31, 1999. As our common stock is not publicly
traded, a readily ascertainable market value is not available.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
YEAR-END(#) AT FISCAL YEAR END($)(1)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Garo H. Armen, Ph.D., Chief
Executive Officer........ -- -- 134,431 171,862 $1,344,839 $1,018,585
Elma Hawkins, Ph.D., Senior
Vice President........... -- -- 137,627 -- $2,277,283 --
Neal Gordon, Ph.D., Vice
President of
Operations............... -- -- 3,785 24,773 $ 43,540 $ 284,991
</TABLE>
- ---------------------------------------------
(1)Based on the difference between the option exercise price and an initial
public offering price of $18.00 per share of common stock.
EMPLOYMENT AND CONSULTING AGREEMENTS
Under an employment agreement dated June 1, 1998, we agreed to employ Elma
Hawkins, Ph.D. as Senior Vice President for one year at an annual base salary of
$200,000, which is subject to performance and merit based increases. Pursuant to
the agreement, we issued Dr. Hawkins options to purchase 137,627 shares of the
company's common stock at an exercise price of $1.45 per share vesting over
three years. The agreement is automatically renewed for successive one-year
periods unless either party terminates the agreement. If we terminate Dr.
Hawkins without cause, as that term is defined in the agreement, she is entitled
to her base salary through the end of the one-year term during which the
termination occurs. If we terminate Dr. Hawkins either because we eliminate her
position of Senior Vice President or because there is a change in control of
Antigenics, we are obligated to pay her cash or Antigenics common stock equal to
one year's base salary.
In March 1995, in exchange for Dr. Pramod Srivastava's consulting services, we
agreed to pay him $1,500 per day for up to three days per month. This obligation
expires in March 2005 but will be automatically extended for additional one-year
periods unless either we or Dr. Srivastava decide not to extend the agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As a limited liability company, a compensation committee consisting of Messrs.
Afeyan and Brodsky reviewed salaries and incentive compensation for our
employees and consultants. The compensation committee of the board of directors
of Antigenics Inc. consists of Messrs. Taylor, Brodsky and Afeyan. Although none
of the compensation committee members are officers or employees of Antigenics,
each of Garo Armen, our chairman and chief executive officer, and Gamil de
Chadarevian, our vice chairman and executive vice president international, have
previously participated in compensation discussions with the committee. None of
our executive officers serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving on our compensation committee. Mr. Brodsky, however, is a partner of
Proskauer Rose LLP, a law firm that provides legal services to us.
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<PAGE> 55
DIRECTOR COMPENSATION
We reimburse directors for out-of-pocket and travel expenses incurred while
attending board of director and committee meetings. We have generally granted to
each director 17,203 shares when that director has joined our board.
EMPLOYEE BENEFIT PLANS
1999 EQUITY INCENTIVE PLAN
Our equity plan authorizes the grant of incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and
nonqualified stock options for the purchase of an aggregate of 4,800,000 shares,
subject to adjustment for stock splits and similar capital changes, of common
stock to our employees and, in the case of non-qualified stock options, to
consultants or any affiliate, as defined in the equity plan. The board of
directors has appointed the compensation committee to administer the equity
plan. As of December 31, 1999, we had options outstanding to purchase 1,696,423
shares of common stock under the equity plan, leaving 3,103,577 shares available
for issuance under future grants under the equity plan.
1999 EMPLOYEE STOCK PURCHASE PLAN
We have also adopted an employee stock purchase plan under which employees may
purchase shares of common stock at a discount from fair market value. We have
reserved 300,000 shares of common stock for issuance under the purchase plan.
The purchase plan is intended to qualify as an employee stock purchase plan
within the meaning of Section 423 of the Internal Revenue Code of 1986, as
amended. The compensation committee grants rights to purchase common stock under
the purchase plan. The compensation committee also determines the frequency and
duration of individual offerings under the plan and the dates when employees may
purchase stock. Eligible employees participate voluntarily and may withdraw from
any offering at any time before they purchase stock. Participation terminates
automatically upon termination of employment. The purchase price per share of
common stock in an offering will not be less than 85% of the lesser of its fair
market value at the beginning of the offering period or on the applicable
exercise date and employees may pay through payroll deductions, periodic lump
sum payments or a combination of both. The purchase plan terminates on November
15, 2009. As of December 31, 1999, we had issued no shares of common stock under
the purchase plan.
401(K) PLAN
We sponsor a 401(k) plan for all of our employees. Employees are eligible to
participate after they have completed one year of service with us. Participants
may contribute up to 15% of their current compensation, with a maximum of
$10,500 in 2000. Each participant is fully vested in his or her salary
contributions and related earnings and losses. We match 100% of the
participant's contribution and our matching contributions vest over four years.
We have discretion to change that amount at any time.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We currently lease office space at cost from GHA Management Corporation which is
wholly owned by Garo Armen, Ph.D. Dr. Armen is our chairman and chief executive
officer, and we use the office space for our corporate headquarters. We incurred
an expense of approximately $143,000, $211,000 and $281,000 for the years ended
December 31, 1997, 1998 and 1999, respectively in connection with that lease.
Under the current agreement, we will pay approximately $312,000 annually until
the agreement expires in December 2006. We believe that the terms of the current
agreement are at least as favorable as terms we could have obtained in an arm's
length transaction with an independent third party. As of December 31, 1999, we
had outstanding letters of credit for the benefit of GHA Management Corporation
in connection with this lease in the amount of $375,000. These letters of credit
expire in January 2000. In addition, during 1997 we obtained office services
from Armen Capital Management Corp., which is wholly owned by Dr. Armen, for
$415,000. You should also read the discussion regarding Mr. Brodsky's
relationship with the law firm of Proskauer Rose LLP under
"Management -- Compensation Committee Interlocks and Insider Participation."
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<PAGE> 56
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of December 31, 1999, and as
adjusted to reflect the sale of 3,500,000 shares of common stock in this
offering, by:
- each person, or group of affiliated persons, who is known by us to
beneficially own more than 5% of the common stock;
- each of our directors;
- each of our named executive officers; and
- all of our directors and current executive officers as a group.
Except as otherwise noted, the persons or entities in this table have sole
voting and investing power with respect to all the shares of common stock
beneficially owned by them, subject to community property laws, where
applicable.
The "Number of Shares Beneficially Owned" column below is based on an assumed
20,715,973 shares of common stock outstanding before the offering, and
24,215,973 shares of common stock outstanding after the offering. For purposes
of the table below, we deem shares of common stock subject to options that are
currently exercisable or exercisable within 60 days of December 31, 1999, to be
outstanding and to be beneficially owned by the person holding the options for
the purpose of computing the percentage ownership of the person but we do not
treat them as outstanding for the purpose of computing the percentage ownership
of any other person.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
NUMBER OF SHARES --------------------
BENEFICIALLY BEFORE AFTER
OWNED OFFERING OFFERING
---------------- -------- --------
<S> <C> <C> <C>
BENEFICIAL OWNER(1)
Antigenics Holdings L.L.C.(2)................. 11,154,275 53.8% 46.1%
Garo H. Armen, Ph.D.(2)....................... 134,431(3) * *
Pramod Srivastava, Ph.D.(2)................... 182,478(3) * *
Gamil de Chadarevian.......................... 1,625,839(4) 7.8% 6.7%
Elma Hawkins, Ph.D............................ 137,627(3) * *
Neal Gordon, Ph.D............................. 5,712(3) * *
Donald Panoz.................................. 270,612(5) 1.3% 1.1%
Noubar Afeyan, Ph.D.(2)....................... 174,614(3) * *
Edward Brodsky(2)............................. 17,203(3) * *
Tom Dechaene.................................. -- * *
Martin Taylor................................. 54,363(6) * *
All current executive officers and directors
as a group(2)(10 persons).................. 2,602,878(7) 11.2% 9.7%
</TABLE>
- ---------------------------------------------
*Indicates less than 1%
(1)The address of each stockholder is Antigenics Inc., 630 Fifth Avenue, New
York, New York 10111.
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<PAGE> 57
(2)Founder Holdings Inc. owns about 79.1% of the outstanding common stock of
Antigenics Holdings. Antigenics Holdings owns 53.8% of our common stock
before this offering and will own 47.0% after this offering. Messrs. Armen,
Srivastava and Brodsky are managers of Antigenics Holdings. Messrs. Armen and
Brodsky are directors of Founder Holdings. The following individuals own the
indicated percentages of Founder Holdings outstanding common stock on a fully
diluted basis:
<TABLE>
<CAPTION>
INDIVIDUAL PERCENTAGE
- ---------- ----------
<S> <C> <C>
Garo Armen 43.1%
Pramod Srivastava 24.2%
Edward Brodsky 2.8%
Noubar Afeyan 1.1%
Lawrence Feinberg 19.4%
</TABLE>
The following individuals own the indicated percentage interests in Antigenics
Holdings on a fully diluted basis:
<TABLE>
<CAPTION>
INDIVIDUAL PERCENTAGE
- ---------- ----------
<S> <C> <C>
Garo Armen 13.6%
Pramod Srivastava 6.2%
Edward Brodsky 0.6%
</TABLE>
(3)Consists solely of shares of common stock issuable upon exercise of options
currently exercisable or exercisable within 60 days of December 31, 1999.
(4)Includes 146,351 shares of common stock issuable upon exercise of options
currently exercisable or exercisable within 60 days of December 31, 1999.
(5)Consists of (a) 17,203 shares of common stock issuable upon exercise of
options currently exercisable or exercisable within 60 days of December 31,
1999 and (b) 253,409 shares of common stock held by Fountainhead Holdings
Ltd., all of the capital stock of which is held by trusts, the beneficiaries
of which are the children and grandchildren of Mr. Panoz.
(6)Includes 17,203 shares of common stock issuable upon exercise of options
currently exercisable or exercisable within 60 days of December 31, 1999.
(7)Includes 832,821 shares of common stock issuable upon exercise of options
currently exercisable or exercisable within 60 days of December 31, 1999. See
footnotes (3), (4), (5) and (6).
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DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of this offering, our authorized capital stock
will consist of 100,000,000 shares of common stock, $0.01 par value per share,
and 1,000,000 shares of preferred stock, $0.01 par value per share. After the
closing of this offering, if we give effect to the issuance of 3,500,000 shares
of common stock and the merger of Antigenics L.L.C. with and into Antigenics
Inc., as of December 31, 1999 there would have been:
- 24,215,973 shares of common stock outstanding;
- options to purchase 1,696,423 shares of common stock outstanding, of
which options to purchase 1,159,334 shares will be exercisable upon
the closing of this offering;
- warrants to purchase 280,886 shares of common stock outstanding, all
of which will be exercisable upon the closing of this offering; and
- no shares of preferred stock outstanding.
COMMON STOCK
Subject to preferences that may apply to shares of preferred stock outstanding
at the time, the holders of outstanding shares of common stock are entitled to
receive dividends out of assets legally available for payment of dividends, as
the board may from time to time determine. Each stockholder is entitled to one
vote for each share of common stock held on all matters submitted to a vote of
stockholders. Our certificate of incorporation does not provide for cumulative
voting for the election of directors, which means that the holders of a majority
of the shares voted can elect all of the directors then standing for election.
The common stock is not entitled to preemptive rights and is not subject to
conversion or redemption. Each outstanding share of common stock is, and all
shares of common stock to be outstanding upon completion of this offering will
be, fully paid and nonassessable.
PREFERRED STOCK
Pursuant to our certificate of incorporation, our board of directors has the
authority, without further action by the stockholders, to issue up to 1,000,000
shares of preferred stock in one or more series and to fix the designations,
powers, preferences, privileges and relative participating, optional or special
rights as well as the qualifications, limitations or restrictions of those
shares, including dividend rights, conversion rights, voting rights, terms of
redemption and liquidation preferences, any or all of which may be greater than
the rights of the common stock. Our board of directors, without stockholder
approval, is able to issue preferred stock with voting, conversion or other
rights that could adversely affect the voting power and other rights of the
holders of common stock. We could therefore issue preferred stock quickly with
terms calculated to delay or prevent a change in control or make removal of
management more difficult. Additionally, the issuance of preferred stock may
have the effect of decreasing the market price of the common stock, and may
adversely affect the voting and other rights of the holders of common stock. At
present, we have no shares of preferred stock outstanding.
WARRANTS
In a private placement in November 1999, we issued warrants to purchase member
interest in Antigenics L.L.C. In connection with this offering, each warrant
holder had the option to:
- convert the warrants into shares of common stock or
- exchange the warrants for warrants to purchase shares of Antigenics
common stock.
None of the warrant holders elected to convert their warrants into shares of
common stock. As a result, these warrants will be exchanged for warrants to
acquire an aggregate of approximately 280,886 shares of common stock. The per
share exercise price for the warrants is $13.96. If not previously exercised,
each warrant will expire on September 30, 2002. Holders may not transfer the
warrants without our consent.
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<PAGE> 59
ANTI-TAKEOVER PROVISIONS
Delaware Law
Section 203 of the Delaware General Corporation Law is applicable to corporate
takeovers of Delaware corporations. Subject to exceptions enumerated in Section
203, Section 203 provides that a corporation shall not engage in any business
combination with any "interested stockholder" for a three-year period following
the date that the stockholder becomes an interested stockholder unless:
- prior to that date, the board of directors of the corporation
approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced,
though some shares may be excluded from the calculation; and
- on or subsequent to that date, the business combination is approved
by the board of directors of the corporation and by the affirmative
votes of holders of at least two-thirds of the outstanding voting
stock that is not owned by the interested stockholder.
Except as specified in Section 203, an interested stockholder is generally
defined to include any person who, together with any affiliates or associates of
that person, beneficially owns, directly or indirectly, 15% or more of the
outstanding voting stock of the corporation, or is an affiliate or associate of
the corporation and was the owner of 15% or more of the outstanding voting stock
of the corporation, any time within three years immediately prior to the
relevant date. Under some circumstances, Section 203 makes it more difficult for
an interested stockholder to effect various business combinations with a
corporation for a three-year period, although the stockholders may elect not to
be governed by this section, by adopting an amendment to our certificate of
incorporation or by-laws, effective 12 months after adoption. Our certificate of
incorporation and by-laws do not exclude us from the restrictions imposed under
Section 203. We expect that the provisions of Section 203 may encourage
companies interested in acquiring us to negotiate in advance with our board of
directors. These provisions may have the effect of deterring hostile takeovers
or delaying changes in control of us, which could depress the market price of
the common stock and which could deprive stockholders of opportunities to
realize a premium on shares of the common stock held by them.
Charter and By-law Provisions
Our certificate of incorporation and by-laws contain provisions that could
discourage potential takeover attempts and make more difficult attempts by
stockholders to change management. Our certificate of incorporation provides
that stockholders may not take action by written consent but may only act at a
stockholders' meeting, and that only our president or a majority of our board
may call special meetings of the stockholders. Our by-laws also require that
stockholders provide advance notice of business to be brought by a stockholder
before the annual meeting. Our certificate of incorporation includes provisions
classifying the board of directors into three classes with staggered three-year
terms. In addition, our directors may only be removed from office for cause.
Under our certificate of incorporation and by-laws, the board of directors may
enlarge the size of the board and fill any vacancies on the board. The by-laws
provide that stockholders may not make nominations for directors at any annual
or special meeting unless the stockholder intending to make a nomination
notifies us of its intention a specified period in advance and furnishes certain
information.
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REGISTRATION RIGHTS
In connection with the private placement completed in November 1999, we granted
registration rights with respect to 2,808,857 shares of common stock sold in
that private placement. Pursuant to these registration rights, we are obligated
to file, approximately 90 days after the date of this prospectus, a registration
statement covering these shares of common stock for resale. We will bear all
expenses incurred in connection with this registration, other than any
underwriters' discounts and commissions.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock Transfer
& Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the common stock, and we
cannot assure you that a liquid trading market for the common stock will develop
or be sustained after this offering. Future sales of substantial amounts of
common stock, including shares issued upon exercise of outstanding options and
warrants, in the public market after this offering or the anticipation of those
sales could adversely affect market prices prevailing from time to time and
could impair our ability to raise capital through sales of our equity
securities.
After the closing of this offering, we will have outstanding 24,215,973 shares
of common stock, which assumes the underwriters do not exercise their
over-allotment option and holders do not exercise any outstanding options or
warrants. Of these shares, the shares sold in this offering will be freely
tradable without restriction under the Securities Act unless purchased by our
"affiliates", as that term is defined in Rule 144 under the Securities Act. We
expect to register an additional 2,808,817 shares under a registration statement
we will file approximately 90 days following this offering. Substantially all
the remaining 17,907,156 restricted shares held by existing stockholders are
subject to various lock-up agreements providing that, with limited exceptions,
the stockholder will not offer, sell, contract to sell, grant an option to
purchase, effect a short sale or otherwise dispose of or engage in any hedging
or other transaction that is designed or reasonably expected to lead to a
disposition of any shares of common stock or any option to purchase common stock
or any securities exchangeable for or convertible into common stock for a period
of one year after the date of this prospectus. Though these shares may be
eligible for earlier sale under the provisions of the Securities Act, none of
these shares will be saleable until 365 days after the date of this prospectus
as a result of these lock-up agreements. In addition, as of December 31, 1999,
we had outstanding options to purchase 1,696,423 shares of common stock, none of
which we expect the option holders to exercise prior to the closing of this
offering. In addition, as of December 31, 1999, we had outstanding warrants to
purchase 280,886 shares of common stock.
In general, under Rule 144 as currently in effect, a person, or persons whose
shares are aggregated, who has beneficially owned restricted shares for at least
one year is entitled to sell within any three-month period up to that number of
shares that does not exceed the greater of: (1) 1% of the number of shares of
common stock then outstanding, which will be approximately 242,159 shares after
this offering, or (2) the average weekly trading volume of the common stock
during the four calendar weeks preceding the filing of a Form 144 with respect
to the sale. Sales under Rule 144 are also subject to certain "manner of sale"
provisions and notice requirements and to the requirement that the issuer has
made current public information about itself available. Under Rule 144(k), a
person who is not deemed to have been an affiliate of the issuer at any time
during the three months preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, including the holding period
of any prior owner except an affiliate, is entitled to sell those shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.
Rule 701 permits resales of qualified shares held by some affiliates in reliance
upon Rule 144 but without compliance with some restrictions, including the
holding period requirement, of Rule 144. Any of our
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<PAGE> 61
employees, officers, directors or consultants who purchased his or her shares
pursuant to a written compensatory plan or contract may be entitled to rely on
the resale provisions of Rule 701. Rule 701 further provides that non-affiliates
may sell shares in reliance on Rule 144 without having to comply with the
holding period, public information, volume limitation or notice provisions of
Rule 144. All holders of Rule 701 shares of common stock are required to wait
until 90 days after the date of this prospectus before selling shares. However,
substantially all shares issued pursuant to Rule 701 are subject to lock-up
agreements and will only become eligible for sale at the expiration of the
365-day lock-up.
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UNDERWRITING
Subject to certain terms and conditions contained in an underwriting agreement,
the underwriters named below, for whom U.S. Bancorp Piper Jaffray Inc. and
FleetBoston Robertson Stephens Inc. are acting as representatives, have
severally agreed to purchase the number of shares of common stock from us set
forth opposite their names below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
<S> <C>
U.S. Bancorp Piper Jaffray Inc.............................. 1,410,000
FleetBoston Robertson Stephens Inc.......................... 940,000
Banc of America Securities LLC.............................. 115,000
CIBC World Markets Corp. ................................... 115,000
Chase Securities, Inc....................................... 115,000
Lehman Brothers Inc. ....................................... 115,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated.......... 115,000
Morgan Stanley & Co. Incorporated........................... 115,000
Prudential Securities Incorporated.......................... 115,000
Salomon Smith Barney Inc. .................................. 115,000
SG Cowen Securities Corporation............................. 115,000
Nessuah Zannex Ltd. ........................................ 115,000
----------
Total............................................. 3,500,000
==========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase shares of common stock are subject to the approval of
certain legal matters by counsel and to certain other conditions. If any of the
shares of common stock are purchased by the underwriters pursuant to the
underwriting agreement, all such shares of common stock (other than the shares
of common stock covered by the over-allotment option described below) must be so
purchased.
We have been advised by the underwriter representatives that the underwriters
propose to offer the shares of common stock to the public initially at the price
to the public set forth on the cover page of this prospectus and to certain
dealers (who may include the underwriters) at such price less a concession not
to exceed $0.75 per share. The underwriters may allow, and such dealers may
reallow, discounts not in excess of $0.10 per share to any other underwriter and
certain other dealers.
We have granted to the underwriters an option to purchase up to 525,000
additional shares of common stock at the initial public offering price less the
underwriting discount solely to cover over-allotments. Such option may be
exercised in whole or in part from time to time during the 30-day period after
the date of this prospectus. To the extent that the underwriters exercise such
option, each of the underwriters will be committed, subject to certain
conditions, to purchase a number of option shares proportionate to such
underwriter's initial commitment as indicated in the preceding table. If the
underwriters exercise their option in full, the total price to the public would
be $72,450,000, the total underwriting discount would be $5,071,500 and total
proceeds to us would be $67,378,500.
We, together with certain of our stockholders and our executive officers and
directors, have agreed not to directly or indirectly offer, pledge, sell,
contract to sell, sell any option or contract to purchase or grant any option,
right or warrant to purchase or otherwise transfer or dispose of any shares of
common stock or any securities convertible into or exercisable or exchangeable
for common stock, or enter into any swap or other arrangement that transfers all
or a portion of the economic consequences associated with the ownership of such
common stock, or to cause a registration statement covering any shares of common
stock to be filed, for a period of one year after the date of this prospectus
without the prior written consent of the underwriters, subject to limited
exceptions. See "Shares Eligible for Future Sale."
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Prior to this offering, there has been no established trading market for the
common stock. The initial price to the public for the common stock offered by us
was determined by negotiation among the underwriter representatives and us. The
factors considered in determining the initial price to the public included the
history of and the prospects for the industry in which we compete, the ability
of our management, our past and present operations, our prospects for future
earnings, the general condition of the securities markets at the time of this
offering and the recent market prices of securities of generally comparable
companies. Our common stock has been approved for quotation on the Nasdaq
National Market.
The underwriters do not intend to make sales to accounts over which they
exercise discretionary authority in excess of 5% of the number of shares of
common stock offered hereby.
In connection with this offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the common stock.
Specifically, the underwriters may over-allot this offering, creating a
syndicate short position. Underwriters may bid for and purchase shares of common
stock in the open market to cover syndicate short positions. In addition, the
underwriters may bid for and purchase shares of common stock in the open market
to stabilize the price of the common stock. These activities may stabilize or
maintain the market price of the common stock above independent market levels.
These transactions may be effected on the Nasdaq National Market or otherwise.
The underwriters are not required to engage in these activities and may end
these activities at any time.
In connection with this offering, some underwriters and selling group members
may also engage in passive market making transactions in the common stock on the
Nasdaq National Market. Passive market making consists of displaying bids on the
Nasdaq National Market limited by the prices of independent market makers and
effecting purchases limited by those prices in response to order flow. Rule 103
of Regulation M promulgated by the SEC limits the amount of net purchases that
each passive market maker may make and the displayed size of each bid. Passive
market making may stabilize the market price of the common stock at a level
above that which might otherwise prevail in the open market and, if commenced,
may be discontinued at any time.
At our request, the underwriters have reserved for sale, at the initial public
offering price, up to 300,000 shares of common stock for our directors,
officers, employees and business associates. The number of shares of common
stock available for sale to the general public will be reduced to the extent
those persons purchase any of the reserved shares. Any reserved shares that are
not purchased will be offered by the underwriters to the general public on the
same basis as the other shares in this offering.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act.
Each underwriter has represented and agreed to the following:
- - it has not offered or sold, and for six months after the date we issue the
common stock, will not offer or sell any shares of common stock to persons in
the United Kingdom except to persons who are ordinarily involved in acquiring,
holding, managing or disposing of investments, as principal or agent, for
business purposes or in other circumstances which have not resulted and will
not result in a public offer in the United Kingdom within the Public Offers of
Securities Regulations 1995;
- - it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 and the Public Offers of Securities Regulations
1995 in any act it has taken or will take with respect to the common stock in,
from or otherwise involving the United Kingdom; and
- - it has only distributed and will only distribute to any person in the United
Kingdom any document received by it in connection with the issuance of the
common stock if that person is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1996 or is a person to whom such document may otherwise be distributed.
The common stock will not be offered directly or indirectly to the public in
Ireland. This document does not constitute or form part of any offer or
invitation to the public or any section of the public in Ireland to
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purchase or subscribe for, nor does it constitute a form of application, for any
common stock for the purposes of the Irish Companies Acts, 1963-1999 or the
European Communities (Transferable Securities and Stock Exchange) Regulations
1992 or any other law of Ireland.
The common stock offered has not been and will not be registered with the
Comision Nacional del Mercado de Valores (Spanish Securities Market Commission)
according to the requirements of Act 24/1988 and R.D. 291/1992. Consequently,
the common stock may not be publicly offered, subscribed, sold or distributed in
Spain.
LEGAL MATTERS
Palmer & Dodge LLP, Boston, Massachusetts will pass upon the validity of the
common stock offered by this prospectus for us. Shearman & Sterling, New York,
New York, will pass upon certain legal matters in connection with this offering
for the underwriters.
EXPERTS
We have included in this prospectus and in the registration statement the
consolidated financial statements of Antigenics L.L.C. and subsidiaries as of
December 31, 1998 and 1999, and for each of the years in the three-year period
ended December 31, 1999, and for the period from March 31, 1994 (date of
inception) to December 31, 1999, in reliance upon the report of KPMG LLP,
independent certified public accountants, appearing elsewhere in this
prospectus, and upon the authority of that firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the SEC for the stock we
are offering by this prospectus. This prospectus does not include all of the
information contained in the registration statement. You should refer to the
registration statement and its exhibits for additional information. While we
have disclosed the material terms of any of our contracts, agreements or other
documents referenced in this prospectus, you should refer to the exhibits
attached to the registration statement for copies of the actual contract,
agreement or other document. When we complete this offering, we will also be
required to file annual, quarterly and special reports, proxy statements and
other information with the SEC.
You can read our SEC filings, including the registration statement, over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file with the SEC at its public reference facilities at 450
Fifth Street, NW, Washington, DC 20549, 7 World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. You may also obtain copies of the documents at
prescribed rates by writing to the Public Reference Section of the SEC at 450
Fifth Street, NW, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330
for further information on the operation of the public reference facilities. Our
SEC filings are also available at the office of the Nasdaq National Market. For
further information on obtaining copies of our public filings at the Nasdaq
National Market you should call (212) 656-5060.
You should rely only on the information contained in the registration statement,
including its exhibits. We have not, and the underwriters have not, authorized
any other person to provide you with different information. This prospectus is
not an offer to sell, nor is it seeking an offer to buy, the securities in any
state where the offer or sale is not permitted. The information in this
prospectus is complete and accurate as of the date in the front cover, but the
information may have changed since that date.
64
<PAGE> 65
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Statements:
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999 and for the period
from March 31, 1994 (date of inception) to December 31,
1999................................................... F-4
Consolidated Statements of Members' Equity for the years
ended December 31, 1997, 1998 and 1999 and for the
period from March 31, 1994 (date of inception) to
December 31, 1999...................................... F-5
Consolidated Statement of Cash Flows for the years ended
December 31, 1997, 1998 and 1999 and for the period
from March 31, 1994 (date of inception) to December 31,
1999................................................... F-6
Notes to Consolidated Financial Statements................ F-7
</TABLE>
F-1
<PAGE> 66
INDEPENDENT AUDITORS' REPORT
The Members and Board of Managers
Antigenics L.L.C.:
We have audited the accompanying consolidated balance sheets of Antigenics
L.L.C. and subsidiaries (a Delaware limited liability company in the development
stage and a successor operating company) as of December 31, 1998 and 1999, and
the related consolidated statements of operations, members' equity and cash
flows for each of the years in the three-year period ended December 31, 1999 and
for the period from March 31, 1994 (date of inception) to December 31, 1999.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Antigenics L.L.C.
and subsidiaries as of December 31, 1998 and 1999 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999 and for the period from March 31, 1994 (date of
inception) to December 31, 1999, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Short Hills, New Jersey
January 17, 2000
F-2
<PAGE> 67
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 22,168,049 $ 46,417,942
Prepaid expenses............................................ 230,632 103,204
Deferred public offering costs.............................. -- 559,417
Other assets................................................ 21,189 591,134
Due from related party...................................... 27,605 240
------------ ------------
Total current assets................................... 22,447,475 47,671,937
Plant and equipment, net.................................... 4,106,183 8,034,598
Other assets................................................ 74,071 297,646
Organization costs, less accumulated amortization of $28,174
in 1998................................................... 7,885 --
------------ ------------
Total assets........................................... $ 26,635,614 $ 56,004,181
============ ============
LIABILITIES AND MEMBERS' EQUITY
Accounts payable............................................ $ 2,036,814 $ 424,673
Accrued liabilities......................................... 48,134 933,440
Current portion, long-term debt............................. 200,497 812,702
------------ ------------
Total current liabilities.............................. 2,285,445 2,170,815
Long-term debt.............................................. 709,006 2,155,005
Members' capital -- no stated value; 104,024 and 120,418
units issued in 1998 and 1999, respectively............... 45,849,184 89,954,195
Subscription notes receivable............................... (2,102,000) --
Deferred compensation....................................... (613,545) (659,081)
Deficit accumulated during development stage................ (19,492,476) (37,616,753)
------------ ------------
Total members' equity.................................. 23,641,163 51,678,361
Commitments and contingencies
------------ ------------
Total liabilities and members' equity.................. $ 26,635,614 $ 56,004,181
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 68
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 AND
FOR THE PERIOD FROM MARCH 31, 1994 (DATE OF INCEPTION)
TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
MARCH 31,
1994
(DATE OF
INCEPTION) TO
DECEMBER 31,
1997 1998 1999 1999
----------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Revenue........................... $ -- $ -- $ -- $ --
Expenses:
Research and development:
Related party................ (39,630) -- (33,000) (72,630)
Other........................ (2,523,041) (6,102,362) (10,943,934) (22,441,824)
----------- ----------- ------------ ------------
(2,562,671) (6,102,362) (10,976,934) (22,514,454)
----------- ----------- ------------ ------------
General and administrative:
Related party................ (518,011) (211,152) (248,000) (1,269,555)
Other........................ (1,030,934) (2,966,011) (6,626,543) (14,620,306)
----------- ----------- ------------ ------------
(1,548,945) (3,177,163) (6,874,543) (15,889,861)
----------- ----------- ------------ ------------
Depreciation and amortization... (202,090) (360,285) (1,005,411) (1,701,758)
----------- ----------- ------------ ------------
Total operating loss......... (4,313,706) (9,639,810) (18,856,888) (40,106,073)
Other income:
Non-operating income............ -- -- 10,000 259,988
Interest income................. 481,179 735,778 1,014,008 2,520,729
Interest expense................ -- -- (291,397) (291,397)
----------- ----------- ------------ ------------
Net loss..................... $(3,832,527) $(8,904,032) $(18,124,277) $(37,616,753)
=========== =========== ============ ============
Net loss per members' equity unit,
basic and diluted............... $ (42.81) $ (93.07) $ (171.85)
=========== =========== ============
Weighted average members' equity
units outstanding, basic and
diluted......................... 89,525 95,673 105,468
=========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 69
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 AND
THE PERIOD FROM MARCH 31, 1994 (DATE OF INCEPTION)
TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
SUBSCRIPTION DURING
MEMBERS' NOTES DEFERRED DEVELOPMENT
UNITS CAPITAL RECEIVABLE COMPENSATION STAGE TOTAL
------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1994................ -- $ -- $ -- $ -- $ -- $ --
Net loss................................. -- -- -- -- (183,440) (183,440)
Issuance of units to founders during
1994, for cash, $6 per unit............ 65,200 400,010 -- -- -- 400,010
------- ----------- ----------- --------- ------------ ------------
Balance at December 31, 1994............. 65,200 400,010 -- -- (183,440) 216,570
Net loss................................. -- -- -- -- (3,226,579) (3,226,579)
Issuance of units in connection with the
recapitalization in December 1995, $250
per unit............................... 6,000 1,500,000 (150,000) -- -- 1,350,000
Grant of members' equity units........... 8,800 2,200,000 -- -- -- 2,200,000
------- ----------- ----------- --------- ------------ ------------
Balance at December 31, 1995............. 80,000 4,100,010 (150,000) -- (3,410,019) 539,991
Net loss................................. -- -- -- -- (3,345,898) (3,345,898)
Payment of subscription notes
receivable............................. -- -- 150,000 -- -- 150,000
Deferred compensation on options......... -- 781,200 -- (781,200) -- --
Grant and recognition of options......... -- 1,116,815 -- 347,200 -- 1,464,015
Issuance of units in private placement
from March 13, 1996 to December 31,
1996, $1,118 per unit.................. 9,512 10,600,000 (250,000) -- -- 10,350,000
------- ----------- ----------- --------- ------------ ------------
Balance at December 31, 1996............. 89,512 16,598,025 (250,000) (434,000) (6,755,917) 9,158,108
Net loss................................. -- -- -- -- (3,832,527) (3,832,527)
Payment of subscription notes
receivable............................. -- -- 250,000 -- -- 250,000
Deferred compensation on options......... -- 144,004 -- (144,004) -- --
Grant and recognition of options......... -- 62,815 -- 188,373 -- 251,188
Issuance of units in private placement
from September 8, 1997 to December 31,
1997, $1,922 per unit.................. 3,842 7,385,000 -- -- -- 7,385,000
------- ----------- ----------- --------- ------------ ------------
Balance at December 31, 1997............. 93,354 24,189,844 -- (389,631) (10,588,444) 13,211,769
Net loss................................. -- -- -- -- (8,904,032) (8,904,032)
Deferred compensation on options......... -- 493,701 -- (493,701) -- --
Grant and recognition of options......... -- 838,654 -- 269,787 -- 1,108,441
Exercise of options...................... 224 250,000 -- -- -- 250,000
Issuance of units in private placement
from January 1, 1998 to December 31,
1998, $1,922 per unit.................. 10,446 20,076,985 (2,102,000) -- -- 17,974,985
------- ----------- ----------- --------- ------------ ------------
Balance at December 31, 1998............. 104,024 45,849,184 (2,102,000) (613,545) (19,492,476) 23,641,163
Net loss................................. (18,124,277) (18,124,277)
Payment of subscription notes
receivable............................. 2,102,000 2,102,000
Deferred compensation on options......... 354,009 (354,009) -- --
Grant and recognition of options......... 4,718,582 308,473 5,027,055
Exercise of options...................... 10 100 -- -- -- 100
Issuance of units in private placement in
January, 1999, $1,922 per unit......... 57 110,000 110,000
Issuance of units and warrants in private
placement on November 30, 1999, $2,402
per unit (net of issuance costs of
$293,000).............................. 16,327 38,922,320 38,922,320
------- ----------- ----------- --------- ------------ ------------
Balance at December 31, 1999............. 120,418 $89,954,195 $ -- $(659,081) $(37,616,753) $ 51,678,361
======= =========== =========== ========= ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 70
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
FOR THE PERIOD FROM MARCH 31, 1994 (DATE OF INCEPTION)
TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
MARCH 31,
1994
(DATE OF
INCEPTION) TO
DECEMBER 31,
1997 1998 1999 1999
----------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................ $(3,832,527) $(8,904,032) $(18,124,277) $(37,616,753)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization...... 202,090 360,285 1,005,411 1,701,758
Members' equity options and
Predecessor Company options...... 251,188 1,108,441 5,027,055 7,850,699
Members' equity grant.............. -- -- -- 2,200,000
Changes in operating assets and
liabilities:
Other assets....................... (64,583) (28,885) (793,520) (888,780)
Prepaid assets..................... (87,927) (91,638) 127,428 (103,204)
Organization costs................. -- -- -- (32,934)
Accounts payable................... (553,263) 1,791,212 (1,612,141) 424,673
Accrued liabilities................ 504,004 (522,735) 885,306 933,440
Due to/from related party, net..... 63,361 (89,263) 27,365 (240)
----------- ----------- ------------ ------------
Net cash used in operating
activities.................... (3,517,657) (6,376,615) (13,457,373) (25,531,341)
----------- ----------- ------------ ------------
Cash flows from investing activities:
Purchase of plant and equipment....... (622,504) (3,704,168) (4,925,941) (9,735,364)
Proceeds from the sale of plant and
equipment.......................... 4,000 27,942 -- 31,942
----------- ----------- ------------ ------------
Net cash used in investing
activities.................... (618,504) (3,676,226) (4,925,941) (9,703,422)
----------- ----------- ------------ ------------
Cash flows from financing activities:
Members' equity contributions......... 7,635,000 17,974,985 41,134,320 78,994,315
Exercise of members' equity options... -- 250,000 100 250,100
Deferred public offering costs........ -- -- (559,417) (559,417)
Payments of long-term debt............ -- -- (512,835) (512,835)
Proceeds from long-term debt.......... -- 909,503 2,571,039 3,480,542
----------- ----------- ------------ ------------
Net cash provided by financing
activities....................... 7,635,000 19,134,488 42,633,207 81,652,705
----------- ----------- ------------ ------------
Net increase in cash and cash
equivalents........................... 3,498,839 9,081,647 24,249,893 46,417,942
Cash and cash equivalents at beginning
of period............................. 9,587,563 13,086,402 22,168,049 --
----------- ----------- ------------ ------------
Cash and cash equivalents at end of
period................................ $13,086,402 $22,168,049 $ 46,417,942 $ 46,417,942
=========== =========== ============ ============
Non-cash investing and financing
activities:
Members' equity contributions financed
by notes receivable................ $ -- $ 2,102,000 $ -- $ --
=========== =========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 71
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND BUSINESS
The business was formed on March 31, 1994 through the creation of a Delaware
corporation (the Predecessor Company). In July 1995, the founders of the
Predecessor Company formed Antigenics L.L.C. (together with its subsidiaries,
Antigenics or the Company), a Delaware limited liability company, and
subsequently transferred to the Company all of the assets, liabilities,
properties and rights of the Delaware corporation in exchange for an initial
81.5% equity interest in the Company. The accounting for this recapitalization
was recorded at the Predecessor Company's historical cost. In connection with
the recapitalization, the Company also raised $1,500,000 (including $150,000 of
subscription notes receivable) in a private equity transaction in exchange for a
7.5% initial ownership interest and a further 11% initial ownership interest was
exchanged for services rendered to the Company by certain outside advisors, the
value of which was recognized as a non-cash expense of $2,200,000 during 1995.
Since the reorganization in 1995, the Predecessor Company has directly or
indirectly owned a majority of the Company's members' equity units. As of
December 31, 1999, the Predecessor Company owns approximately 79% of a limited
liability company that in turn owns approximately 54% of the Company's
outstanding members' equity units. Certain board members and executive officers
of the Company own significant interests in these related parties.
The Company is developing immunotherapeutics for the treatment of cancer,
infectious diseases and autoimmune disorders based on the Company's proprietary
heat shock protein technology. The Company's research has demonstrated that when
purified heat shock protein-peptide complexes are injected into the skin, they
trigger an immune response against cancers and infectious diseases. Antigenics
seeks to create immunotherapeutics to stimulate patients' immune systems into
destroying diseased cells in the body.
Antigenics is primarily engaged in the development of its heat shock protein
technology and its lead immunotherapeutic product, Oncophage(R). The related
business activities include product research and development activities,
regulatory and clinical affairs, establishing manufacturing capabilities,
production for clinical trials, and administrative and corporate development
activities. As of December 31, 1999, the Company has not commenced commercial
operations and, accordingly, is in the development stage. Consequently, the
Company is subject to all the risks inherent in the establishment of a new
business. The Company has incurred annual operating losses since inception and,
as a result, at December 31, 1999 has a deficit accumulated during the
development stage of approximately $37.6 million. The Company's operations
during development have been funded principally by members' equity. While the
Company believes that its working capital resources are sufficient to satisfy
its liquidity requirements over the next 12 months, satisfying the Company's
long-term liquidity needs will require the successful commercialization of
Oncophage or other products and may require additional capital.
The Company's immunotherapeutics require clinical trials and approvals from
regulatory agencies as well as acceptance in the marketplace. The Company is
conducting clinical trials in various cancer indications. Although the Company
believes its patents, patent rights and patent applications are valid, the
invalidation of its patents or failure of certain of its pending patent
applications to issue as patents could have a material adverse effect upon its
business. The Company competes with specialized biotechnology companies, major
pharmaceutical and chemical companies and universities and research
institutions. Many of these competitors have substantially greater resources
than the Company.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION
The Company's consolidated financial statements include the accounts of
Antigenics L.L.C. and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
F-7
<PAGE> 72
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(b) USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(c) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with maturities at
acquisition of three months or less to be cash equivalents. Cash equivalents at
December 31, 1998 and 1999 consist of investments in money market accounts which
are unrestricted as to withdrawal or use.
(d) PLANT AND EQUIPMENT
Plant and equipment are carried at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets. Amortization
of leasehold improvements is computed over the shorter of the lease term or
estimated useful life of the asset. Additions and improvements are capitalized,
while repairs and maintenance are charged to expense as incurred.
(e) ORGANIZATION COSTS
Prior to 1999, organization costs, consisting primarily of legal fees, were
amortized using the straight-line method over a five-year period. Effective
January 1, 1999, the Company adopted the provisions of the American Institute of
Certified Public Accountants' Statement of Position No. 98-5 (SOP 98-5),
"Reporting on the Costs of Start-Up Activities". SOP 98-5 requires that the
costs of start-up activities and organizational costs be expensed as incurred
and that previously capitalized organizational costs be charged to operations.
The adoption of SOP 98-5 had an immaterial effect on the Company's consolidated
financial statements.
(f) LONG-LIVED ASSETS
The Company's policy is to record long-lived assets at cost, amortizing these
costs over the expected useful lives of the related assets. In accordance with
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of,"
these assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amounts of the assets may not be
recoverable. The assets are evaluated for continuing value and proper useful
lives by comparison to expected undiscounted future net cash flows. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets, calculated as expected discounted future cash flows.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.
(g) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument represents the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation. Significant differences can arise
between the fair value and carrying amounts of financial instruments that are
recognized at historical cost amounts. The estimated fair values of all of the
Company's financial instruments, excluding debt, approximate their carrying
amounts in the consolidated balance sheets. The
F-8
<PAGE> 73
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
fair value of the Company's long-term debt was derived by evaluating the nature
and terms of each term note and considering the prevailing economic and market
conditions at the balance sheet date. The carrying amount of debt, including
current portions, is approximately $910,000 and $2,968,000 at December 31, 1998
and 1999, respectively; and the fair value is estimated to be approximately
$910,000 and $3,026,000 at December 31, 1998 and 1999, respectively.
(h) ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
------- --------
<S> <C> <C>
Clinical trials......................................... $23,946 $399,897
Professional fees....................................... -- 170,000
Vacation................................................ 2,400 59,551
Sponsored research...................................... -- 81,000
Other................................................... 21,788 222,992
------- --------
$48,134 $933,440
======= ========
</TABLE>
(i) MEMBERS' EQUITY OPTION PLAN
The Company accounts for options granted to employees and directors in
accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations. As such,
compensation expense is recorded on fixed members' equity option grants only if
the current fair value of the underlying unit exceeds the exercise price of the
option at the date of grant.
The Company accounts for members' equity options granted to non-employees on a
fair value basis in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation" and Emerging Issues Task Force Issue No. 96-18, "Accounting for
Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services". As a result, the non-cash charge
to operations for non-employee options with vesting or other performance
criteria is affected each reporting period by changes in the fair value of the
Company's members' equity units.
As required, the Company also provides pro forma net loss and pro forma net loss
per members' equity unit disclosures for employee and director members' equity
option grants as if the fair-value-based method defined in SFAS No. 123 had been
applied (see Note 5).
(j) RESEARCH AND DEVELOPMENT
Research and Development expenses include the costs associated with internal
research and development by the Company and research and development conducted
for the Company by outside advisors, sponsored university-based research
partners, and clinical study partners. All research and development costs
discussed above are expensed as incurred. Amounts received under research and
development contracts, which are not refundable, are recorded as a reduction to
research and development expense in the consolidated statement of operations.
(k) INCOME TAXES
As a Delaware limited liability company, no federal, state and local income
taxes are levied on the Company. Each member of the Company is individually
responsible for reporting his or her share of the
F-9
<PAGE> 74
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company's net income or loss on their personal tax returns. Therefore, no
provision for income taxes and no deferred tax assets or liabilities are
recognized in the accompanying consolidated financial statements.
(l) NET LOSS PER MEMBERS' EQUITY UNIT
Basic earnings or loss per members' equity unit (EPU) is computed using the
weighted average number of members' equity units outstanding during the period
being reported on. Diluted EPU reflects the potential dilution that could occur
if securities or other contracts to issue members' equity units were exercised
or converted into members' equity units at the beginning of the period being
reported on and the effect was dilutive. Net loss and weighted average members'
equity units used for computing diluted EPU were the same as that used for
computing basic EPU for each of the years ended December 31, 1997, 1998 and 1999
because the Company's members' equity options and warrants were not included in
the calculation since the inclusion of such potential members' equity units
would be antidilutive.
(m) SEGMENT INFORMATION
The Company is managed and operated as one business. The entire business is
managed by a single management team that reports to the chief executive officer.
The Company does not operate separate lines of business or separate business
entities with respect to any of its product candidates. Accordingly, the Company
does not prepare discrete financial information with respect to separate product
areas or by location and does not have separately reportable segments as defined
by SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information."
(n) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which
establishes accounting and reporting standards for derivative instruments,
including derivatives instruments embedded in other contracts, and for hedging
activities. SFAS No. 133 is effective for all the Company's fiscal quarters
beginning January 1, 2001. This statement is not expected to affect the Company
as it currently does not have derivative instruments or engage in hedging
activities.
(3) PLANT AND EQUIPMENT, NET
Plant and equipment, net at December 31, 1998 and 1999 consists of the
following:
<TABLE>
<CAPTION>
ESTIMATED
DEPRECIABLE
1998 1999 LIVES
---------- ---------- -------------
<S> <C> <C> <C>
Furniture, fixtures and other.............. $ 486,933 $ 575,989 3 to 10 years
Laboratory and manufacturing equipment..... 1,426,427 2,915,053 3 to 10 years
Leasehold improvements..................... 224,580 5,901,213 2 to 5 years
Construction in progress................... 2,639,181 --
---------- ----------
4,777,121 9,392,255
Less accumulated depreciation and
amortization............................. 670,938 1,357,657
---------- ----------
$4,106,183 $8,034,598
========== ==========
</TABLE>
Plant and equipment retired and removed from the accounts aggregated $310,807
for the year ended December 31, 1999.
F-10
<PAGE> 75
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) MEMBERS' EQUITY
Antigenics has one class of members' equity. All members vote their equity
interests in proportion to their respective unit interest in the Company. Net
profits and losses of the Company for each fiscal year are allocated to the
capital accounts of the members as described in the limited liability company
agreement, generally in proportion to their respective unit ownership interests.
No members are liable for any obligations of the Company or are required to
contribute any additional capital related to the deficits incurred.
Since the formation of the Company in 1995 (see Note 1), the Company has raised
capital through private placement equity transactions. During 1996, the Company
completed a private placement offering of approximately 9,500 members' equity
units in exchange for $10,600,000. Subscription notes receivable of $250,000 at
December 31, 1996, which represented promissory notes from members in
consideration of their equity contributions, were satisfied in full during 1997.
During 1997, the Company commenced a private placement offering, which resulted
in approximately 3,800 members' equity units being sold for approximately
$7,385,000 during 1997 and approximately 10,400 members' equity units being sold
for approximately $20,077,000 during 1998. This offering was completed during
early 1999 and resulted in an aggregate of approximately $27,572,000 being
received by the Company over the three-year period.
Subscription notes receivable of $2,102,000 at December 31, 1998, which
represented promissory notes from members in consideration of their equity
contributions, were satisfied in full during 1999.
In November 1999, the Company raised gross proceeds of approximately $39.2
million from the sale of approximately 16,300 members' equity units, inclusive
of warrants, through a private equity placement. In connection with the private
placement, the Company netted approximately $293,000 of expenses against the
gross proceeds and agreed to issue approximately 32 members' equity units to
placement agents which are not considered outstanding as of December 31, 1999.
Each member participating in this private placement received a warrant to
purchase an additional 10% of the units acquired in this offering, rounded to
the nearest whole number, at a price of approximately $2,402 per unit. The
warrants expire on September 30, 2002. Each warrant holder has the option to
convert its warrants into common stock of Antigenics Inc. on a cashless basis
upon the completion of an initial public offering (IPO) of the Company's equity,
the amount of which is affected by the offering price of the common stock. Each
member participating in this private placement also received registration rights
in the event of an IPO.
(5) EQUITY OPTIONS
In March 1996, the board of managers approved an equity-based incentive
compensation plan (the Plan). Pursuant to the provisions of the Plan, the board
of managers may grant options to directors, employees and outside advisors to
purchase members' equity units of the Company. At the date of grant, the board
of managers sets the terms of the options including the exercise price and
vesting period. The options granted through December 31, 1999 have vesting
periods ranging up to five years. Options generally have a contractual life of
ten years. A maximum of 9% (increased from 7% during 1999) of total equity,
inclusive of the options granted, may be granted as options (approximately
11,900 options as of December 31, 1999).
The following summarizes activity for options granted to directors and
employees, including those with an exercise price equal to the fair value of the
underlying members' equity unit at the date of grant ("at-the-money exercise
price"), those with an exercise price greater than the fair value of the
underlying members' equity unit at the date of grant ("out-of-the-money exercise
price"), and those with an exercise
F-11
<PAGE> 76
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
price less than the fair value of the underlying members' equity unit at the
date of grant ("in-the-money exercise price"):
<TABLE>
<CAPTION>
OPTIONS WEIGHTED WEIGHTED
MEMBERS' EXERCISABLE AVERAGE AVERAGE
EQUITY AT END OF GRANT-DATE EXERCISE
OPTIONS YEAR FAIR VALUE PRICE
-------- ----------- ---------- --------
<S> <C> <C> <C> <C>
Outstanding December 31, 1995............ --
Granted:
At-the-money exercise price......... 1,300 $ 120 $ 250
In-the-money exercise price......... 900 948 250
Exercised.............................. -- -- --
-----
Outstanding December 31, 1996............ 2,200 1,500
=====
Granted:
At-the-money exercise price......... 110 687 1,118
In-the-money exercise price......... 166 1,113 522
Exercised.............................. -- -- --
-----
Outstanding December 31, 1997............ 2,476 1,733
=====
Granted:
Out-of-the-money exercise price..... 154 1,158 1,922
In-the-money exercise price......... 536 1,441 1,001
Exercised.............................. -- -- --
-----
Outstanding December 31, 1998............ 3,166 2,022
=====
Granted:
Out-of-the-money exercise price..... 1,480 1,075 2,077
In-the-money exercise price......... 296 1,664 1,118
Expired................................ (127) -- 1,222
Exercised.............................. -- -- --
----- ====== ======
Outstanding December 31, 1999............ 4,815 2,907
===== =====
</TABLE>
During 1996, 1997, 1998 and 1999, 900, 166, 536 and 296 options, respectively,
were granted to employees and directors at exercise prices which were less than
the fair value of the underlying members' equity units on the grant date.
Compensation expense recognized with respect to such options totaled
approximately $347,000, $188,000, $270,000 and $308,000 for the years ended
December 31, 1996, 1997, 1998 and 1999, respectively. Deferred compensation at
December 31, 1999 of approximately $659,000 will be recognized over the vesting
period of the options.
F-12
<PAGE> 77
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes activity for options granted to outside advisors:
<TABLE>
<CAPTION>
OPTIONS WEIGHTED WEIGHTED
MEMBERS' EXERCISABLE AVERAGE AVERAGE
EQUITY AT END OF GRANT-DATE EXERCISE
OPTIONS YEAR FAIR VALUE PRICE
-------- ----------- ---------- --------
<S> <C> <C> <C> <C>
Outstanding December 31, 1995............ --
Granted.................................. 2,057 $ 577 $ 344
Exercised.............................. -- -- --
-----
Outstanding December 31, 1996............ 2,057 1,449
=====
Granted................................ -- -- --
Exercised.............................. -- -- --
-----
Outstanding December 31, 1997............ 2,057 1,857
=====
Granted................................ 1,115 1,649 549
Exercised.............................. (224) -- 250
-----
Outstanding December 31, 1998............ 2,948 1,783
=====
Granted................................ 1,591 1,614 2,066
Exercised.............................. (10) -- 10
----- ====== ======
Outstanding December 31, 1999............ 4,529 3,555
===== =====
</TABLE>
In December 1999, the board of managers accelerated the remaining vesting
requirements on 1,562 members' equity options granted to outside advisors. As a
result, the Company recognized a charge to operations in the fourth quarter of
1999 of approximately $2,093,000.
The 1996 options grants above exclude 517 options granted to outside advisors
with an exercise price which is determined based on fair value of the underlying
units beginning on the second anniversary of the grant date as the options vest.
Compensation expense for these options is recognized when the exercise price
becomes known and performance has been completed. For the years ended December
31, 1998 and 1999, approximately $199,000 and $189,000, respectively, was
charged to operations for 138 and 139 of such options, respectively, that vested
at an exercise price of approximately $1,922 per unit in each year.
The charge to operations related to options granted to outside advisors by the
Company, including the amounts described in the previous two paragraphs, totaled
approximately $696,000, $63,000, $839,000 and $4,719,000 for the years ended
December 31, 1996, 1997, 1998 and 1999, respectively. At December 31, 1999,
unrecognized expense for options granted to outside advisors for which
performance (vesting) has not yet been completed but the exercise price of the
options is known is approximately $40,000; such amount is subject to change each
reporting period based upon changes in the fair value of the Company's members'
equity units, estimated volatility and the risk free interest rate until the
outside advisor completes his or her performance under the option agreement.
F-13
<PAGE> 78
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the Company's options outstanding and exercisable, excluding the
1996 options described above for which the exercise price is not yet known, as
of December 31, 1999, follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED AVE. ----------------------------
RANGE OF NUMBER REMAINING WEIGHTED AVE. NUMBER WEIGHTED AVE.
EXERCISE PRICES OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ----------------- ----------- ------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 250 - $ 750 5,258 6.73 $ 301 4,300 $ 262
$ 751 - $1,250 1,161 8.13 1,118 169 1,118
$1,251 - $1,750 -- -- -- -- --
$1,751 - $2,250 3,202 9.27 2,078 1,993 2,077
----- -----
9,621 6,462
===== =====
</TABLE>
Since the 1995 reorganization described in Note 1, the Predecessor Company has
directly or indirectly owned a majority of the Company's members' equity units.
During 1996, the Predecessor Company approved a stock option plan (the
Predecessor Plan). In accordance with generally accepted accounting principles,
the Predecessor Plan is accounted for as if it had been adopted by Antigenics
and treated as a contribution to members' capital. Pursuant to the provisions of
the Predecessor Plan, the Predecessor Company may grant options to officers,
directors, employees and consultants to purchase common stock of the Predecessor
Company. The terms of the options, including exercise price and vesting period,
are set at the date of grant. The options have a contractual life of ten years
and may not have an exercise price less than the fair value of a share of common
stock of the Predecessor Company at date of grant. A maximum of 300 options may
be granted under the Predecessor Plan.
During 1996, the Predecessor Company granted approximately 160 options to
directors and employees at a weighted average exercise price of $9,006 per share
of Predecessor Company common stock and a weighted average grant-date fair value
of approximately $4,301 per share. During 1997, the Predecessor Company granted
approximately 14 options to a director at a weighted average exercise price of
$26,666 per share of Predecessor Company common stock and a weighted average
grant-date fair value of $16,407 per share. All the options are immediately
vested and exercisable. All of the options remain outstanding and none have been
exercised. No compensation expense was recognized by Antigenics during 1996 and
1997 as the exercise price of the options is equal to the fair value of the
common stock of the Predecessor Company at the date of the option grant.
During 1996, the Predecessor Company granted approximately 76 options to
consultants at a weighted average exercise price of $9,006 per share and a
weighted average grant-date fair value of approximately $5,535 per share. All of
the consultants' options are immediately vested and exercisable. All of the
consultants' options remain outstanding and none have been exercised. During
1996, Antigenics recognized a charge to operations related to options granted to
consultants by the Predecessor Company of approximately $421,000.
The Company accounts for options granted to employees and directors under APB
Opinion No. 25. Had compensation cost for options granted to employees and
directors by Antigenics and the Predecessor
F-14
<PAGE> 79
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company been determined consistent with SFAS No. 123, the Company's pro forma
net loss and pro forma net loss per members' equity unit would have been as
follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Net loss:
As reported.............................. $(3,832,527) $(8,904,032) $(18,124,277)
Pro forma................................ (4,090,742) (8,978,654) (19,097,345)
=========== =========== ============
Net loss per members' equity unit:
As reported.............................. $ (42.81) $ (93.07) $ (171.85)
Pro forma................................ (45.69) (93.85) (181.07)
=========== =========== ============
</TABLE>
The effects of applying SFAS No. 123, for either recognizing or disclosing
compensation cost under such pronouncement, may not be representative of the
effects on reported net income or loss for future years. The fair value of each
option granted is estimated on the date of grant using an option-pricing model
with the following weighted average assumptions:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Estimated volatility........................................ 57% 61% 54%
Expected life in years -- employee and director options..... 6 6 6
Risk-free interest rate..................................... 6.3% 5.4% 5.0%
Dividend yield.............................................. 0% 0% 0%
</TABLE>
The Company estimates volatility for purposes of computing compensation expense
on outside advisor options and for disclosure purposes using the volatility of
public companies that the Company considers comparable. The expected life used
to estimate the fair value of outside advisor options is equal to the
contractual life of the option granted.
(6) COMMITMENTS
In November 1994, the Predecessor Company entered into a Patent License
Agreement (Mount Sinai Agreement) with the Mount Sinai School of Medicine (Mount
Sinai). Through the Mount Sinai Agreement, the Company has obtained the
exclusive licenses to the patent rights which resulted from the research and
development performed by Dr. Pramod Srivastava, a director of the Company. Under
the Mount Sinai Agreement, the Company agreed to pay Mount Sinai a nominal
royalty on related product sales (as defined in the Mount Sinai Agreement)
through the last expiration date of the patents under the Mount Sinai Agreement
(2015). In addition to these royalty payments, Mount Sinai was issued a nominal
equity interest.
During 1995, Dr. Srivastava moved his research to Fordham University (Fordham).
The Predecessor Company entered into a Patent License Agreement (Fordham
Agreement) with Fordham, agreeing to reimburse Fordham for all approved costs
incurred in the performance of the research. The Predecessor Company has also
agreed to pay Fordham a nominal royalty on related product sales, as defined,
through the last expiration date of the patents under the Fordham Agreement.
This agreement ended in mid-1997. During 1995, 1996 and 1997, the direct and
indirect costs incurred by the Company related to this agreement were
approximately $546,000, $926,000 and $902,000, respectively, and are included in
research and development expenses in the consolidated statements of operations
for such years.
F-15
<PAGE> 80
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In February 1998, the Company entered into a research agreement with the
University of Connecticut Health Center (UConn) and Dr. Srivastava. The
agreement has a term of approximately five years and calls for payments to UConn
totaling a minimum of $5,000,000, payable quarterly at the rate of $250,000
(contingent on the continuing employment of Dr. Srivastava by UConn). In
addition, as research was begun by Dr. Srivastava in 1997, the Company agreed to
pay approximately $475,000 for these previous services and expensed such amount
as research and development during 1997. Research and development expense in the
accompanying 1998 and 1999 consolidated statement of operations includes
approximately $1,000,000 in each of the respective years of costs incurred under
the UConn agreement. Royalties at varying rates are due to UConn upon
commercialization of a product utilizing technology discovered during the
research agreement.
In 1996, Antigenics entered into an agreement with Sloan-Kettering Institute for
Cancer Research (Sloan Kettering) to conduct clinical studies. The Company is
required to pay Sloan Kettering $10,000 for administration and start up costs
and $4,000 per patient in the study.
On December 2, 1997, Antigenics entered into two agreements with The University
of Texas M.D. Anderson Cancer Center (M.D. Anderson) to conduct clinical
studies. The Company is required to pay M.D. Anderson a total of approximately
$538,000 for expenses for the clinical study of approximately 90 patients and
other related costs payable in four installments. In addition, on March 20, 1998
the Company entered into another clinical study with M.D. Anderson. Under such
1998 agreement, the Company is required to pay M.D. Anderson a total of
approximately $118,000 for the study of 30 patients and other related costs
payable in four installments.
In 1998, Antigenics entered into an agreement with the Johannes Gutenberg
Universitat Mainz Klinikum (Universitat) to conduct additional clinical studies.
The Company is required to pay the Universitat approximately $279,000 for
expenses for the clinical study of approximately 30 patients. The first
installment was paid upon signing the agreement.
In 1998, Antigenics entered into an agreement, as amended, with Sigma-Tau
Industrie Farmaceutiche Riunite S.P.A (Sigma-Tau), a minority interest-holder of
members' equity, to conduct clinical studies in Italy, Spain, Portugal and
Switzerland. Under the agreement, Sigma-Tau is required to pay Antigenics for
services provided by the Company in relation to these clinical studies. In
return, Antigenics has granted Sigma-Tau the exclusive right to negotiate a
marketing and development agreement (the Development Agreement) for the
exclusive use of Antigenics' patent rights and their product, and the right of
first offer to negotiate licenses for other medical uses of their product, in
Italy, Spain, Portugal and Switzerland. The Development Agreement has not been
finalized. During 1999, Antigenics provided approximately $581,000 of services
associated with this agreement. This receivable amount is included in other
current assets in the accompanying consolidated balance sheet. Amounts received
under this agreement are non-refundable even if the research effort is
unsuccessful. In addition, Antigenics does not incur any future performance
commitments in relation to amounts recorded for Sigma-Tau.
On June 21, 1999, Antigenics entered into another agreement with M.D. Anderson
to conduct clinical studies. The Company is required to pay M.D. Anderson a
total of approximately $277,000 for the clinical study of approximately 40
patients and other related costs payable in installments over two years.
For the years ended December 31, 1996, 1997, 1998 and 1999, approximately
$10,000, $4,000, $255,000 and $975,000, respectively, has been expensed in the
accompanying consolidated statements of operations related to the above
mentioned clinical studies.
F-16
<PAGE> 81
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) RELATED PARTY TRANSACTIONS
The Company rents office space for its New York City headquarters (see Note 8)
and, prior to 1999, utilized certain office services of entities which are
wholly-owned by the Company's chief executive officer and chairman of the board.
Rent and office services, which are recorded at the affiliates' cost, are
allocated to the Company based on square footage and clerical staff usage,
respectively, which management believes is reasonable. Such transactions
amounted to approximately $293,000, $558,000, $211,000 and $281,000 for the
years ended December 31, 1996, 1997, 1998 and 1999, respectively. The Company
also periodically pays the entire monthly rent amount for all of the office
space on behalf of the above noted entities for which the Company is reimbursed
on a current basis. As of December 31, 1998 and 1999, the affiliated entities
were indebted to the Company for $27,605 and $240, respectively, for costs paid
on the affiliated entities' behalf.
During 1997 and renewed each year thereafter, the Company obtained standby
letters of credit for the benefit of the related party in the amount of $375,000
in connection with the related party's lease of the New York City office space.
These letters expire in January 2000.
(8) LEASES
The Company leases administrative, laboratory and office facilities under
various month-to-month and long-term lease arrangements. Rent expense, exclusive
of the amounts paid to the affiliate (see Note 7), was approximately $134,000,
$685,000 and $560,000 for the years ended December 31, 1997, 1998 and 1999,
respectively.
In November 1999, the Company signed a long-term lease agreement for its New
York City headquarters with an entity wholly-owned by the Company's chief
executive officer and chairman of the board. The lease expires in December 2006
and requires annual rental payments of approximately $312,000 which is equal to
the related party's cost. Prior to November 1999, the headquarters office space
was rented on a month-to-month basis from the same affiliate.
The future minimum rental payments under the Company's lease of its Woburn,
Massachusetts manufacturing and laboratory facility, which expires in 2003, and
its New York City headquarters, are as follows:
<TABLE>
<S> <C>
Year ending December 31:
2000........................................... $ 759,516
2001........................................... 759,516
2002........................................... 759,516
2003........................................... 591,696
2004........................................... 312,000
Thereafter..................................... 624,000
----------
$3,806,244
==========
</TABLE>
(9) DEBT
The Company has a $5 million credit facility from a financial institution
pursuant to which the Company can draw down amounts to make or refinance certain
capital expenditures. As the Company utilizes the credit facility, separate term
notes will be executed. Each term loan will have a term of forty-two months
F-17
<PAGE> 82
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and the interest rate is fixed at the closing of each term loan. Each loan is
collateralized by the equipment, fixtures, and improvements acquired with the
proceeds of the loan.
The aggregate maturities of the term loan for each of the five years subsequent
to December 31, 1999 are as follows: 2000 -- $812,702; 2001 -- $939,303;
2002 -- $1,021,634; 2003 -- $194,068.
(10) 401(k) PLAN
The Company sponsors a defined contribution 401(k) savings plan for all eligible
employees, as defined. Participants may contribute up to 15% of their
compensation, as defined, with a maximum of $10,000 in 1999. Each participant is
fully vested in his or her contributions and related earnings and losses. The
Company matches 100% of the participant's contribution and such matching
contribution vests over four years. For the years ended December 31, 1997, 1998
and 1999, the Company charged approximately $29,000, $55,000 and $145,000 to
operations for the 401(k) plan.
(11) PROPOSED INITIAL PUBLIC OFFERING
The Initial Public Offering
In November 1999, the Company created a subsidiary, Antigenics Inc., in
contemplation of the Company's IPO. The board of directors of Antigenics Inc.
authorized the filing of a registration statement with the Securities and
Exchange Commission (SEC) to sell shares of its common stock in connection with
the proposed IPO. Concurrent with the completion of the IPO, the Company will be
converted from a limited liability company to a corporation through a merger
with and into Antigenics Inc. All members will exchange their respective member
interests for shares of common stock and options and warrants to purchase common
stock of Antigenics Inc. based on an exchange ratio of 172.0336 shares of common
stock for each members' equity unit. If the IPO is not completed, the conversion
to the corporation will not take place.
Through December 31, 1999, the Company has deferred approximately $559,000 of
offering costs on its consolidated balance sheet. These and other costs of the
offering will be netted against the gross proceeds from the offering at closing.
If the IPO does not close, all deferred offering costs will be charged to
operations.
Adoption of Employee Stock Purchase Plan
In connection with the proposed IPO, the board of directors of Antigenics Inc.
approved an employee stock purchase plan. Under the plan, employees may purchase
shares of common stock at a discount from fair value. There are 300,000 shares
of common stock reserved for issuance under the purchase plan. The purchase plan
is intended to qualify as an employee stock purchase plan within the meaning of
Section 423 of the Internal Revenue Code of 1986, as amended. Rights to purchase
common stock under the purchase plan are granted at the discretion of the
compensation committee, which determines the frequency and duration of
individual offerings under the plan and the dates when stock may be purchased.
Eligible employees participate voluntarily and may withdraw from any offering at
any time before the stock is purchased. Participation terminates automatically
upon termination of employment. The purchase price per share of common stock in
an offering will not be less than 85% of the lesser of its fair value at the
beginning of the offering period or on the applicable exercise date and may be
paid through payroll deductions, periodic lump sum payments or a combination of
both. The plan terminates on November 15, 2009.
F-18
<PAGE> 83
ANTIGENICS L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Adoption of Equity Incentive Plan
In connection with the proposed IPO, the board of directors of Antigenics Inc.
approved an employee equity incentive plan. Antigenics Inc.'s equity incentive
plan authorizes the grant of incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended, and nonqualified
stock options for the purchase of an aggregate of 4,800,000 shares (subject to
adjustment for stock splits and similar capital changes) of common stock to
Antigenics Inc.'s employees and, in the case of non-qualified stock options, to
consultants and directors of Antigenics Inc. or any affiliate, as defined in the
equity plan. The board of directors has appointed the compensation committee to
administer the equity plan. Members' equity options outstanding under the
Company's current equity-based incentive compensation plan (see Note 5) will be
exchanged for stock options under the new equity incentive plan at the closing
of the IPO.
(12) PRO FORMA INCOME TAX PROVISION (UNAUDITED)
As discussed in Note 2(k), the Company is not subject to income taxes and
therefore does not provide for income taxes in its consolidated financial
statements. Had the Company been organized as a tax paying entity for the year
ended December 31, 1999, there would be no pro forma income tax provision
because of a loss before income taxes and the need to recognize a valuation
allowance on all gross deferred tax assets. Given the Company's past history of
incurring operating losses, management believes that it is more likely than not
that any deferred tax assets will not be realized.
F-19
<PAGE> 84
3,500,000 SHARES
ANTIGENICS INC.
COMMON STOCK
[ANTIGENICS INC. LOGO]
-------------------------------
PROSPECTUS
-------------------------------
Until February 28, 2000, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
U.S. BANCORP PIPER JAFFRAY
ROBERTSON STEPHENS
FEBRUARY 3, 2000
