<PAGE> 1
Filed pursuant to Rule 424(b)(3)
Registration Statement File No. 333-37820
PROSPECTUS SUPPLEMENT NO. 3 DATED NOVEMBER 13, 2000
TO
PROSPECTUS DATED JUNE 5, 2000
ANTIGENICS INC.
This Prospectus Supplement No. 3 should be read in conjunction with our
Prospectus dated June 5, 2000, our Prospectus Supplement No. 1 dated August 14,
2000 and our Prospectus Supplement No. 2 dated August 24, 2000 which are to be
delivered together with this Prospectus Supplement No. 3. This Prospectus
Supplement No. 3 includes the attached Quarterly Report on Form 10-Q of
Antigenics Inc. for the quarter ended September 30, 2000 that we previously
filed with the Securities and Exchange Commission.
<PAGE> 2
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended September 30, 2000 Commission File No. 000-29089
ANTIGENICS INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 06-1562417
(State of Incorporation) (I.R.S. Employer Identification Number)
630 FIFTH AVENUE, SUITE 2100, NEW YORK, NEW YORK, 10111
(Address of Principal Executive Offices)
(212) 332-4774
(Registrant's Telephone Number, including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
-------- --------
Number of shares outstanding of the registrant's Common Stock as of October 31,
2000:
Common Stock, par value $.01 24,808,035 shares outstanding
----------
<PAGE> 3
ANTIGENICS INC.
SEPTEMBER 30, 2000
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
----
Item 1 - Unaudited Consolidated Financial Statements
Consolidated Balance Sheets (unaudited)
December 31, 1999 and September 30, 2000.........................1
Consolidated Statements of Operations (unaudited)
For the Three and Nine Months ended September 30,
1999 and 2000, and for the period from March 31, 1994
(date of inception) to September 30, 2000........................2
Consolidated Statements of Stockholders' Equity (unaudited)
For the Nine Months ended September 30, 2000 and the
period from March 31, 1994 (date of inception) to
September 30, 2000...............................................3
Consolidated Statements of Cash Flows (unaudited)
For the Nine Months ended September 30, 1999 and 2000
and for the period from March 31, 1994 (date of
inception) to September 30, 2000.................................5
Notes To Unaudited Consolidated Financial Statements................6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations..............................9
Item 3 - Quantitative and Qualitative Disclosures About Market Risk.........12
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings..................................................13
Item 2 - Changes in Securities and Use of Proceeds .........................13
Item 3 - Defaults Upon Senior Securities....................................13
Item 4 - Submission of Matters to a Vote of Security Holders................13
Item 5 - Other Information..................................................13
Item 6(a) - Exhibits........................................................13
Item 6(b) - Reports on Form 8-K.............................................13
Signatures..................................................................14
<PAGE> 4
PART I - FINANCIAL INFORMATION
Item 1 - Unaudited Financial Statements
ANTIGENICS INC.
(a development stage company)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND
SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 46,417,942 $ 101,553,087
Prepaid expenses 103,204 487,572
Deferred public offering costs 559,417 --
Due from related party 240 --
Deferred acquisition costs -- 689,939
Other assets 591,134 12,415
------------ -------------
Total current assets 47,671,937 102,743,013
Plant and equipment, net 8,034,598 8,623,681
Other assets 297,646 731,494
------------ -------------
Total assets $ 56,004,181 $ 112,098,188
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 424,673 $ 1,709,911
Accrued liabilities 933,440 1,338,356
Current portion, long-term debt 812,702 905,913
------------ -------------
Total current liabilities 2,170,815 3,954,180
Long-term debt 2,155,005 1,463,166
Commitments and contingencies
Stockholders' Equity:
Preferred stock, par value $0.01 per share; 1,000,000 -- --
shares authorized; no shares issued and outstanding
Common stock, par value $0.01 per share; 100,000,000 207,159 248,075
shares authorized; 20,715,942 and 24,807,579 shares
issued and outstanding at December 31, 1999 September
30, 2000, respectively
Additional paid-in capital 89,747,036 159,326,113
Deferred compensation (659,081) (1,316,622)
Deficit accumulated during development stage (37,616,753) (51,576,724)
------------ -------------
Total stockholders' equity 51,678,361 106,680,842
------------ -------------
Total liabilities and stockholders' equity $ 56,004,181 $ 112,098,188
============ =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
1
<PAGE> 5
ANTIGENICS INC.
(a development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999
AND 2000, AND FOR THE PERIOD FROM MARCH 31, 1994 (DATE OF
INCEPTION) TO SEPTEMBER 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, 1994
(DATE OF
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, INCEPTION) TO
------------------------------- ------------------------------- SEPTEMBER 30,
1999 2000 1999 2000 2000
------------ ---------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Revenue $ -- -- -- -- --
Expenses:
Research and development:
Related party (8,250) (34,433) (24,750) (61,066) (133,696)
Other (2,435,975) (4,463,804) (7,232,138) (11,625,792) (34,067,616)
------------ ---------- ----------- ----------- -----------
(2,444,225) (4,498,237) (7,256,888) (11,686,858) (34,201,312)
General and administrative:
Related party (69,916) (50,207) (177,695) (207,457) (1,477,012)
Other (1,480,681) (1,394,337) (3,813,046) (5,148,273) (19,768,579)
------------ ---------- ----------- ----------- -----------
(1,550,597) (1,444,544) (3,990,741) (5,355,730) (21,245,591)
Depreciation and amortization (386,464) (421,522) (726,038) (1,141,570) (2,843,328)
-----------
Operating loss (4,381,286) (6,364,303) (11,973,667) (18,184,158) (58,290,231)
Other income/(expense):
Non-operating income -- -- -- -- 259,988
Interest expense (66,442) (91,608) (151,653) (296,345) (587,742)
Interest income 180,231 1,705,046 640,672 4,520,532 7,041,261
------------ ---------- ----------- ----------- -----------
Net loss $ (4,267,497) (4,750,865) (11,484,648) (13,959,971) (51,576,724)
============ ========== =========== =========== ===========
Net loss per share,
basic and diluted $ (0.24) (0.19) (0.64) (0.58)
============ ========== =========== ===========
Weighted average number of shares
outstanding, basic and diluted 17,906,228 24,804,804 17,905,085 24,193,251
============ ========== =========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE> 6
ANTIGENICS INC.
(a development stage company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND
THE PERIOD FROM MARCH 31, 1994 (DATE OF INCEPTION)
TO SEPTEMBER 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK DEFICIT
--------------------- ADDITIONAL ACCUMULATED
NUMBER OF PAR PAID-IN SUBSCRIPTION DEFERRED DURING
SHARES VALUE CAPITAL NOTES COMPENSATION DEVELOPMENT STAGE TOTAL
---------- -------- ----------- ------------ ------------ ----------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1994 -- $ -- -- -- -- -- --
Net loss -- -- -- -- -- (183,440) (183,440)
Issuance of common stock
to founders during
1994, for cash, $.03
per share 11,216,590 112,166 287,844 -- -- -- 400,010
---------- -------- ----------- ---------- ---------- ----------- -----------
Balance at December 31, 1994 11,216,590 112,166 287,844 -- -- (183,440) 216,570
Net loss -- -- -- -- -- (3,226,579) (3,226,579)
Issuance of common stock
in connection with the
recapitalization in
December 1995, $1.45
per share 1,032,202 10,322 1,489,678 (150,000) -- -- 1,350,000
Grant of common stock 1,513,896 15,139 2,184,861 -- -- -- 2,200,000
---------- -------- ----------- ---------- ---------- ----------- -----------
Balance at December 31, 1995 13,762,688 137,627 3,962,383 (150,000) -- (3,410,019) 539,991
Net loss -- -- -- -- -- (3,345,898) (3,345,898)
Deferred compensation on
stock options -- -- 781,200 -- (781,200) -- --
Grant and recognition of
stock options -- -- 1,116,815 -- 347,200 -- 1,464,015
Payment of subscription
notes receivable -- -- -- 150,000 -- -- 150,000
Issuance of common stock in
private placement from
March 13, 1996 to
December 31, 1996,
$6.50 per share 1,636,383 16,364 10,583,636 (250,000) -- -- 10,350,000
---------- -------- ----------- ---------- ---------- ----------- -----------
Balance at December 31, 1996 15,399,071 153,991 16,444,034 (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
stock options -- -- 144,004 -- (144,004) -- --
Grant and recognition of
stock options -- -- 62,815 -- 188,373 -- 251,188
Issuance of common stock in
private placement from
September 8, 1997 to
December 31, 1997,
$11.17 per share 660,953 6,609 7,378,391 -- -- -- 7,385,000
---------- -------- ----------- ---------- ---------- ----------- -----------
Balance at December 31, 1997 16,060,024 160,600 24,029,244 -- (389,631) (10,588,444) 13,211,769
</TABLE>
3
<PAGE> 7
(continued)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Net loss -- -- -- -- -- (8,904,032) (8,904,032)
Deferred compensation
on stock options -- -- 493,701 -- (493,701) -- --
Grant and recognition
of stock options -- -- 838,654 -- 269,787 -- 1,108,441
Exercise of stock
options 38,536 385 249,615 -- -- -- 250,000
Issuance of common
stock in private
placement from
January 1, 1998 to
December 31, 1998,
$11.17 per share 1,797,063 17,971 20,059,014 (2,102,000) -- -- 17,974,985
---------- -------- ----------- ---------- ---------- ----------- -----------
Balance at December 31, 1998 17,895,623 178,956 45,670,228 (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 stock options -- -- 354,009 -- (354,009) -- --
Grant and recognition
of stock options -- -- 4,718,582 -- 308,473 -- 5,027,055
Exercise of stock
options 1,720 17 83 -- -- -- 100
Issuance of common
stock in private
placement in January
1999, $11.17 per
share 9,806 98 109,902 -- -- -- 110,000
Issuance of common
stock and warrants in
private placement on
November 31, 1999,
$13.96 per share (net
of issuance costs of
$293,000) 2,808,793 28,088 38,894,232 -- -- -- 38,922,320
---------- -------- ----------- ---------- ---------- ----------- -----------
Balance at December 31, 1999 20,715,942 207,159 89,747,036 -- (659,081) (37,616,753) 51,678,361
Net loss -- -- -- -- -- (13,959,971) (13,959,971)
Deferred compensation
on stock options -- -- 1,048,922 -- (1,048,922) -- --
Grant and recognition
of stock options and
warrants -- -- 1,843,952 -- 391,381 -- 2,235,333
Exercise of stock
options and warrants 66,637 666 497,292 -- -- -- 497,958
Issuance of common stock in
IPO on February 9, 2000,
$18 per share (net of
issuance costs of
$6,220,839) 4,025,000 40,250 66,188,911 -- -- -- 66,229,161
---------- -------- ----------- ---------- ---------- ----------- -----------
Balance at September 30, 2000 24,807,579 248,075 159,326,113 -- (1,316,622) (51,576,724) 106,680,842
========== ======== =========== ========== ========== =========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE> 8
ANTIGENICS INC.
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
AND FOR THE PERIOD FROM MARCH 31, 1994 (DATE OF
INCEPTION) TO SEPTEMBER 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, 1994
(DATE OF
SEPTEMBER 30, INCEPTION) TO
---------------------------- SEPTEMBER 30,
1999 2000 2000
------------ ------------ --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(11,484,648) (13,959,971) (51,576,724)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 726,038 1,141,570 2,843,328
Stock options, warrants and Predecessor
Company stock options 2,373,714 2,235,333 10,086,032
Common stock grant -- -- 2,200,000
Changes in operating assets and liabilities:
Other assets (396,876) 444,871 (443,909)
Prepaid assets 34,208 (384,368) (487,572)
Organization costs -- -- (32,934)
Accounts payable (1,050,262) 1,285,238 1,709,911
Accrued liabilities 346,368 404,916 1,338,356
Due to/from related party, net 35,599 240 --
------------ ------------ ------------
Net cash used in operating activities (9,415,859) (8,832,171) (34,363,512)
------------ ------------ ------------
Cash flows from investing activities:
Purchase of plant and equipment (4,591,636) (1,730,653) (11,466,965)
Investments -- (300,000) (300,000)
Deferred acquisition costs -- (689,939) (689,939)
Proceeds from the sale of plant and equipment -- -- 31,942
------------ ------------ ------------
Net cash used in investing activities (4,591,636) (2,720,592) (12,424,962)
------------ ------------ ------------
Cash flows from financing activities:
Net proceeds from sale of equity 2,212,000 66,788,578 145,224,424
Exercise of stock options and warrants -- 497,958 748,058
Proceeds from long-term debt 2,514,656 -- 3,480,542
Payments of long-term debt (275,520) (598,628) (1,111,463)
------------ ------------ ------------
Net cash provided by financing
activities 4,451,136 66,687,908 148,341,561
------------ ------------ ------------
Net (decrease) increase in cash and cash (9,556,359) 55,135,145 101,553,087
equivalents
Cash and cash equivalents at beginning of period 22,168,049 46,417,942 --
------------ ------------ ------------
Cash and cash equivalents at end of period $ 12,611,690 101,553,087 101,533,087
============ ============ ============
Supplemental cash flow information:
Interest paid $ 151,653 296,345 587,742
============ ============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE> 9
ANTIGENICS INC.
(a development stage company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Antigenics Inc.
and its subsidiary have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete annual financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included. Operating results for the nine-month period ended September 30,
2000 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2000. For further information, refer to the financial
statements and footnotes thereto for the year ended December 31, 1999 included
in our registration statement on Form S-1 filed with the Securities and Exchange
Commission on May 25, 2000.
NOTE B - INITIAL PUBLIC OFFERING
On February 9, 2000, we completed an initial public offering (the "IPO") of
4,025,000 shares of common stock at $18 per share. We received $72,450,000
before deduction of offering expenses of approximately $6,221,000. Concurrent
with the completion of the IPO, we were converted from a limited liability
company to a corporation. All members of the limited liability company exchanged
their respective member interests for shares of common stock in the corporation.
The financial statements have been retroactively adjusted to reflect the
conversion from a limited liability company to a corporation and the exchange of
each unit of members' equity into 172.0336 shares of common stock.
NOTE C - INCOME TAXES
Prior to converting to a corporation, as a limited liability company, no
federal, state or local income taxes were levied on the company. Each member of
the limited liability company was individually responsible for reporting their
share of the company's net income or loss on their personal tax returns. As a
result, we will not be able to offset future taxable income, if any, against
losses incurred prior to the conversion to a corporation.
Income taxes are accounted for under the asset and liability method. Beginning
February 9, 2000, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be reversed or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. Deferred tax assets are
recorded when they more likely than not are able to be realized.
Given our history of incurring operating losses, management believes that it is
more likely than not that any deferred tax assets, net of deferred tax
liabilities, will not be realized. Therefore, there is no income tax benefit in
the accompanying financial statements because of a loss before income taxes and
the need to recognize a valuation allowance on net deferred tax assets.
NOTE D - EARNINGS PER SHARE
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share," requires the calculation and presentation of "Basic" and "Diluted"
earnings per share. Basic earnings per share is calculated by dividing net loss
by the weighted average number of common shares outstanding. Diluted earnings
per share is calculated by dividing net loss by the weighted average common
shares outstanding plus the dilutive effect of outstanding stock options and
stock
6
<PAGE> 10
warrants. Because we report a net loss, diluted earnings per share is the same
as basic earnings per share because the effect of outstanding stock options and
stock warrants being added to weighted average shares outstanding would reduce
the net loss per share. Therefore, outstanding stock options and stock warrants
are not included in the calculation.
NOTE E - STOCK-BASED COMPENSATION PLANS
EMPLOYEE STOCK PURCHASE PLAN
In connection with the IPO, the board of directors approved an employee stock
purchase plan. The stockholders, at the May 2000 stockholders' meeting, approved
the plan. Under the plan, employees may purchase shares of common stock at a
discount from fair market value. There are 300,000 shares of common stock
(subject to adjustment for stock splits and similar capital changes) 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 stock is
purchased. Participation terminates automatically upon termination of
employment. The purchase price per share of common stock in an offering is 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. As of September 30, 2000, no shares of common stock have been
issued under the purchase plan.
EQUITY INCENTIVE PLAN
In connection with the IPO, the board of directors approved an equity incentive
plan. Our 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 non-qualified stock options for the purchase of an aggregate of
4,800,000 shares of common stock (subject to adjustment for stock splits and
similar capital changes) to employees and, in the case of non-qualified stock
options, to outside advisors and directors of Antigenics. The board of directors
has appointed the compensation committee to administer the equity plan. The
ability to grant incentive stock options to employees and directors was approved
by the stockholders at the May 2000 stockholders' meeting.
During the nine months ended September 30, 2000, we granted approximately
264,000 non-qualified stock options to employees and directors with exercise
prices at or below the fair value of the underlying shares at the date of grant
and approximately 185,000 incentive stock options at prices equal to the fair
value of the underlying shares at the date of grant. These options were granted
at a weighted average exercise price of $12.26 per share. In addition, we
granted approximately 117,000 non-qualified stock options to outside advisors of
which approximately 88,000 options vested immediately and the remainder vest
over periods up to five years. These options were granted at a weighted average
exercise price of $13.44 per share. Approximately 54,000 options were forfeited
during the nine months ended September 30, 2000 with a weighted average exercise
price of $7.50 per share.
We recorded a charge to operations related to the grants of options to employees
and directors for the three months ended September 30, 1999 and 2000, of
approximately $38,000 and $134,000, respectively, and $194,000 and $391,000 for
the nine months ended September 30, 1999 and 2000, respectively. For the three
months ended September 30, 1999 and 2000, the charge to operations related to
options granted and earned by outside advisors totaled approximately $750,000
and $416,000, respectively, and $2,179,000 and $1,844,000 for the nine months
ended September 30, 1999 and 2000, respectively.
NOTE F - COMMITMENTS AND RELATED PARTY TRANSACTIONS
7
<PAGE> 11
On February 11, 2000, we entered into a research agreement with The University
of Texas M.D. Anderson Cancer Center ("MDA") to conduct clinical studies. We are
required to pay MDA a total of approximately $358,000 for the clinical study of
approximately 35 patients. The first installment was paid upon signing the
agreement.
On May 16, 2000, we entered into another research agreement with MDA to conduct
clinical studies. We are required to pay MDA $273,611 over the next year in 3
installments.
On May 18, 2000, we committed $3,000,000 to become a limited partner in a
limited partnership which will invest principally in companies that apply
genomic technologies and information in their offerings of products and services
or that are engaged in research and development and efforts involving genomic
technologies with a view to developing such products and services. Contributions
to the limited partnership are made as authorized by the general partner. As of
September 30, 2000, we have invested $300,000 and have included this amount in
non-current other assets. We account for this investment under the cost method.
The general partner of the limited partnership is AGTC Partners, L.P. and
NewcoGen Group Inc. is the general partner of AGTC Partners, L.P. Noubar Afeyan,
Ph.D., who is one of our directors, is the president of NewcoGen Group Inc. and
is also a principal of the limited partnership. In addition, Garo H. Armen,
Ph.D., our chief executive officer and one of our directors, is a director of
NewcoGen Group Inc.
On August 24, 2000 we assumed a lease for our New York City headquarters from an
entity wholly-owned by our chief executive officer and chairman of the board
effective January 3, 2000. The lease expires in December 2006 and requires
annual rental payments of approximately $450,000, which is equal to the
affiliates' cost. Prior to August 24, the headquarters office space was sublet
from the same affiliate. No consideration was paid or received as a result of
our assumption of the lease.
NOTE G - PROPOSED MERGER
On August 18, 2000 we entered into an agreement to acquire Aquila
Biopharmaceuticals, Inc. Pursuant to the agreement, each outstanding share of
Aquila common stock will be exchanged for 0.2898 shares of our common stock, and
Aquila will become our wholly-owned subsidiary. Based on a total of
approximately 8,630,200 shares of Aquila common stock outstanding on September
27, 2000, we would issue approximately 2,501,000 shares of our common stock in
the merger. We expect to account for the merger under the purchase method of
accounting, which means the purchase price, estimated to be approximately $45
million, will be allocated to the assets and liabilities of Aquila, including
its intangible assets, based upon their fair values. The results of operations
and cash flows of Aquila will be included in our financial statements
prospectively as of the closing of the merger. In addition, we anticipate
recognizing a non-recurring charge to operations at the date of closing of the
merger for the immediate write-off of acquired in-process research and
development. Based upon preliminary valuations, such charge is estimated at
approximately $27 million; the final valuation may differ from this estimate.
Closing of the merger is subject to the adoption of the agreement by the Aquila
stockholders, regulatory approval and other customary closing conditions.
8
<PAGE> 12
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements reflecting management's current
expectations regarding our future performance. These expectations are based on
certain assumptions regarding the timing of our clinical trials, the efficacy of
products, the availability of capital and other factors relating to our growth.
These expectations may not materialize if product development efforts are
delayed or suspended or if other assumptions prove incorrect. These factors are
more fully discussed in our registration statements on Form S-1 filed with the
Securities and Exchange Commission on May 25, 2000.
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(R). Our business activities have included:
- product research and development;
- intellectual property prosecution;
- establishing manufacturing capabilities;
- manufacturing immunotherapeutics for clinical trials; and
- regulatory and clinical affairs.
We have incurred significant losses since our inception because we have not
generated any revenues. As of September 30, 2000, we had an accumulated deficit
of approximately $51,577,000. 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 equity and debt financings to fund 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;
- the progress of our other research and development efforts; and
- the timing and success of our acquisition of Aquila.
HISTORICAL RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1999
Revenue: We generated no revenue during the three months ended September 30,
2000 or during the three months ended September 30, 1999.
Research and Development: Research and development expense increased 84% to
$4,498,000 for the three months ended September 30, 2000 from $2,444,000 for the
three months ended September 30, 1999. The increase was primarily due to the
increase in our staff to support our expanded research and development
activities, which increased costs by $881,000, an increase in costs associated
with strengthening our patent position of $350,000, an increase in costs to
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support our ongoing clinical trials of $322,000, an increase in costs associated
with operating our manufacturing and research facility of $202,000, and other
ongoing development activities that increased costs by $299,000. Research and
development expenses consist primarily of compensation for our employees and
outside advisors conducting research and development work, costs associated with
our sponsored research at the University of Connecticut, costs associated with
the operation of our manufacturing and laboratory facility and the costs to
support our Oncophage clinical trials.
General and Administrative: General and administrative expenses decreased 7% to
$1,445,000 for the three months ended September 30, 2000 from $1,551,000 for the
three months ended September 30, 1999. The decrease was primarily due to the
decrease in the non-cash charge for options granted to and earned by outside
advisors, directors and employees to $244,000 for the three months ended
September 30, 2000 from $478,000 for the three months ended September 30, 1999
partially offset by the growth in the number of our employees to support our
expanded business operations that increased costs by $82,000. General and
administrative expenses consisted primarily of personnel compensation, office
expenses and professional fees.
Depreciation and Amortization: Depreciation and amortization expense increased
9% to $422,000 for the three months ended September 30, 2000 from $386,000 for
the three months ended September 30, 1999.
Interest Income: Interest income increased 847% to $1,705,000 for the three
months ended September 30, 2000 from $180,000 for the three months ended
September 30, 1999. This increase was principally attributable to a higher
average cash and cash equivalents balance during the three months ended
September 30, 2000 as compared to the three months ended September 30, 1999 as a
result of net proceeds of $38,922,000 from a private equity financing completed
in November 1999 and $66,229,000 from our initial public offering completed in
February 2000.
Interest expense: Interest expense increased 39% to $92,000 for the three months
ended September 30, 2000 from $66,000 for the three months ended September 30,
1999 due to the increased borrowings under a credit facility to partially fund
the construction of our manufacturing and laboratory facility.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
Revenue: We generated no revenue during the nine months ended September 30, 2000
or during the nine months ended September 30, 1999.
Research and Development: Research and development expense increased 61% to
$11,687,000 for the nine months ended September 30, 2000 from $7,257,000 for the
nine months ended September 30, 1999. The increase was primarily due to the
increase in our staff to support our expanded research and development
activities, which increased costs by $2,388,000, an increase in the non-cash
charge for options granted and earned by outside advisors, directors and
employees from $1,082,000 for the nine months ended September 30, 1999 to
$1,149,000 for the nine months ended September 30, 2000, an increase in costs
associated with operating our manufacturing and research facility of $626,000,
an increase in costs associated with strengthening our patent position of
$464,000, an increase in costs to support our ongoing clinical trials of
$345,000, and other ongoing development activities that increased costs by
$540,000.
General and Administrative: General and administrative expenses increased 34% to
$5,356,000 for the nine months ended September 30, 2000 from $3,991,000 for the
nine months ended September 30, 1999. The increase was primarily due to the
growth in the number of our employees to support our expanded business
operations that increased costs by $635,000, increased costs related directly to
operating as a public company of $232,000, and the increase in general office
expenses and professional fees of $679,000. These increases are partially offset
by the decrease in the non-cash charge for options granted and earned by outside
advisors, directors and employees to $1,086,000 for the nine months ended
September 30, 2000 from $1,292,000 for the nine months ended September 30, 1999.
Depreciation and Amortization: Depreciation and amortization expense increased
57% to $1,142,000 for the nine months ended September 30, 2000 from $726,000 for
the nine months ended September 30, 1999. This increase was due
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to the depreciation expense of our new 30,225 square foot manufacturing and
laboratory facility and related equipment placed in service during the second
quarter of 1999.
Interest Income: Interest income increased 605% to $4,521,000 for the nine
months ended September 30, 2000 from $641,000 for the nine months ended
September 30, 1999. This increase was principally attributable to a higher
average cash and cash equivalents balance during the nine months ended September
30, 2000 as compared to the nine months ended September 30, 1999 as a result of
net proceeds of $38,922,000 from a private equity financing completed in
November 1999 and $66,229,000 from our initial public offering completed in
February 2000.
Interest expense: Interest expense increased 95% to $296,000 for the nine months
ended September 30, 2000 from $152,000 for the nine months ended September 30,
1999 due to the increased borrowings under a credit facility to partially fund
the construction of our manufacturing and laboratory facility.
LIQUIDITY AND CAPITAL RESOURCES
We have incurred annual operating losses since inception, and at September 30,
2000, we had incurred an accumulated deficit of $51,577,000. Since our
inception, we have financed our operations primarily through the sale 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. Most recently, we have completed an initial public offering that raised
net proceeds of $66,229,000. From our inception through September 30, 2000, we
raised aggregate net proceeds of $145,973,000 through the sale of equity and the
exercise of stock options and warrants, 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 current working capital. We
may, however, raise money in the capital markets. 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 September 30, 2000 were $101,553,000, an
increase of $55,135,000 from December 31, 1999. During the nine months ended
September 30, 2000, we used cash primarily to finance operations, including our
Oncophage clinical trials.
Net cash used in operating activities for the nine months ended September 30,
1999 and 2000 was $9,416,000 and $8,832,000. The decrease resulted from the
increase in our staff to support our expanded research and development
activities, an increase in costs associated with operating our manufacturing and
research facility, the increase in the activity of our Oncophage clinical trials
and general expansion of our operations which were partially offset by the
increase in our interest income.
Net cash used in investing activities for the nine months ended September 30,
1999 and 2000 was $4,592,000 and $2,721,000. The investments were primarily for
the purchase of equipment, furniture and fixtures, and in 1999 the construction
of our manufacturing and laboratory facility, which was primarily completed
during the second quarter of 1999. During 1999, 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. During
the second quarter of 2000, for investment and strategic purposes we invested
$300,000 to become a limited partner in a limited partnership which will invest
principally in companies that apply genomic technologies and information in
their offerings of products and services or that are engaged in research and
development and efforts involving genomic technologies with a view to developing
such products and services. Our total commitment to this limited partnership is
$3,000,000 with contributions made as authorized by the general partner. During
the third quarter of 2000, we have incurred deferred acquisition costs of
$690,000 relating to the agreement and plan of merger with Aquila
Biopharmaceuticals, Inc.
Net cash provided by financing activities was $4,451,000 and $66,688,000 for the
nine months ended September 30, 1999 and 2000. Since inception, our primary
source of financing has been from equity investments. During the nine months
ended September 30, 1999 and 2000, sales of equity and, in 2000, exercises of
stock options and warrants, totaled
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approximately $2,212,000 and $498,000. At September 30, 2000, we had outstanding
$2,369,000 under our credit facility, which was used to finance the construction
of our manufacturing and laboratory facility and to purchase related equipment.
Loans that were drawn down on the credit facility are secured by specific
assets, including leasehold improvements, which they finance.
During the third quarter 2000, we signed an agreement and plan of merger with
Aquila Biopharmaceuticals, Inc. Provided the merger closes as expected,
expenditures related to the merger will include, but not be limited to,
severance payments, additional debt service costs, and increased operating
expenses. These increased expenditures will be partially offset by the expected
revenue related to Aquila's product line.
OTHER
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting or Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. SFAS No. 133, as amended, will be
effective for our fiscal year beginning January 1, 2001. The adoption of SFAS
No. 133 is not expected to have a material effect on our financial position or
results of operations.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation" (FIN 44). FIN 44 provides
guidance on the accounting for stock-based compensation grants to employees and
directors. The Interpretation was adopted prospectively beginning July 1, 2000
and did not have a material effect on our financial position or results of
operations.
Item 3 - 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, 1999 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.
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PART II - OTHER INFORMATION
Item 1 -- Legal Proceedings
None
Item 2 -- Changes in Securities and Use of Proceeds
On February 3, 2000 the Securities and Exchange Commission declared our
Registration Statement on Form S-1 (File No. 333-91747) effective in
connection with the initial public offering of our common stock. U.S.
Bancorp Piper Jaffray Inc. and FleetBoston Robertson Stephens Inc. served
as managing underwriters of the offering.
On February 9, 2000, we sold 4,025,000 shares of our common stock
(including the underwriters' overallotment option) at $18 per share to the
underwriters. We received net proceeds in the initial public offering of
approximately $66,229,000 reflecting gross proceeds of $72,450,000 net of
underwriter commissions of approximately $5,071,500 and other offering
costs of approximately $1,149,500.
We have used the following net offering proceeds as of September 30, 2000:
approximately $1,672,000 for fixed asset additions, $300,000 for
investments, $535,000 for debt obligations, $690,000 for deferred
acquisition costs and $7,378,000 for operations.
The offering has terminated with the sale of all of the securities that
were registered.
Item 3 -- Defaults Upon Senior Securities
None
Item 4 -- Submission of Matters to a Vote of Security Holders
None
Item 5 -- Other Information
None
Item 6(a) -- Exhibits
EXHIBITS DESCRIPTION
-------- -----------
2.1 Agreement and Plan of Merger dated as of August 18, 2000, among
Antigenics Inc., St. Marks Acquisition Corp. and Aquila
Biopharmaceuticals, Inc. Filed as Exhibit 99.1 to Antigenics
Current Report on Form 8-K (File No. 000-29089) and incorporated
herein by reference.
10.1 Assignment Agreement among RCPI Trust, GHA Management Corporation
and Antigenics Inc. dated August 24, 2000. Filed as exhibit 10.20
to Antigenics Registration Statement on Form S-4 (File No.
333-46168) and incorporated herein by reference.
27 Financial Data Schedule.
Item 6(b) -- Reports on Form 8-K
On August 24, 2000, we filed a current report on Form 8-K dated August 18, 2000,
to disclose that we entered into an agreement to acquire Aquila
Biopharmaceuticals, Inc.
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<PAGE> 17
ANTIGENICS INC.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
ANTIGENICS INC.
Date: November 13, 2000 /s/ Garo H. Armen
-------------------------------------
Garo H. Armen
President and Chief Executive Officer
(Principal Accounting Officer)
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ANTIGENICS INC.
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 Agreement and Plan of Merger dated as of August 18, 2000, among
Antigenics Inc., St. Marks Acquisition Corp. and Aquila
Biopharmaceuticals, Inc. Filed as Exhibit 99.1 to Antigenics
Current Report on Form 8-K (File No. 000-29089) and incorporated
herein by reference.
10.1 Assignment Agreement among RCPI Trust, GHA Management Corporation
and Antigenics Inc. dated August 24, 2000. Filed as exhibit 10.20
to Antigenics Registration Statement on Form S-4 (File No.
333-46168) and incorporated herein by reference.
27 Financial Data Schedule
15
