<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-15006
AVANT IMMUNOTHERAPEUTICS, INC.
(Exact name of registrant as specified in charter)
DELAWARE NO. 13-3191702
(State of Incorporation) (I.R.S. Employer Identification No.)
119 FOURTH AVENUE, NEEDHAM, MASSACHUSETTS 02494-2725
(Address of principal executive offices) (Zip code)
(781) 433-0771
(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 / /.
<TABLE>
<CAPTION>
Outstanding as of
Class November 9, 1999
----- -----------------
<S> <C>
Common Stock, par value $.001 48,011,026
</TABLE>
<PAGE>
AVANT IMMUNOTHERAPEUTICS, INC.
TABLE OF CONTENTS
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I--FINANCIAL INFORMATION
Condensed Consolidated Balance Sheet at September 30, 1999 and December 31, 1998 .................. 3
Condensed Consolidated Statement of Operations for the Quarters Ended
September 30, 1999 and 1998 .............................................................. 4
Condensed Consolidated Statement of Operations for the Nine Months Ended
September 30, 1999 and 1998 .............................................................. 5
Condensed Consolidated Statement of Cash Flows for the Nine Months Ended
September 30, 1999 and 1998 .............................................................. 6
Notes to Condensed Consolidated Financial Statements .............................................. 7
Management's Discussion and Analysis of Financial Condition and Results of
Operations ...................................................................................... 9
PART II--OTHER INFORMATION
Item 1. Legal Proceedings ........................................................................ 13
Item 2. Changes in Securities .................................................................... 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. Exhibits and Reports on Form 8-K
A. Exhibits ............................................................................. 13
B. Reports on Form 8-K .................................................................. 13
Signatures ........................................................................................ 14
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AVANT IMMUNOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
- ----------------------------------------------------------------- --------------------- ---------------------
(audited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 15,848,700 $ 8,937,200
Marketable Securities -- 4,903,100
Current Portion Restricted Cash 750,000 750,000
Current Portion Lease Receivable 395,700 395,700
Prepaid Expenses and Other Current Assets, Net 640,900 629,700
- ----------------------------------------------------------------- --------------------- ---------------------
Total Current Assets 17,635,300 15,615,700
- ----------------------------------------------------------------- --------------------- ---------------------
Property and Equipment, Net 1,261,100 1,111,400
Restricted Cash 265,000 365,000
Long-Term Lease Receivable 539,600 827,300
Other Assets 3,677,200 4,730,700
- ----------------------------------------------------------------- --------------------- ---------------------
Total Assets $ 23,378,200 $ 22,650,100
- ----------------------------------------------------------------- --------------------- ---------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 60,100 $ 363,700
Accrued Expenses 954,800 1,184,700
Deferred Revenue -- 750,000
Short-Term Note Payable 750,000 750,000
Current Portion Lease Payable 269,200 269,200
- ----------------------------------------------------------------- --------------------- ---------------------
Total Current Liabilities 2,034,100 3,317,600
- ----------------------------------------------------------------- --------------------- ---------------------
Long-Term Lease Payable 351,000 562,900
- ----------------------------------------------------------------- --------------------- ---------------------
Stockholders' Equity:
Common Stock, $.001 Par Value 48,000 42,500
Additional Paid-In Capital 150,631,400 140,777,200
Less: Common Treasury Shares at Cost -- (13,800)
Accumulated Deficit (129,686,300) (122,036,300)
- ----------------------------------------------------------------- --------------------- ---------------------
Total Stockholders' Equity 20,993,100 18,769,600
- ----------------------------------------------------------------- --------------------- ---------------------
Total Liabilities and Stockholders' Equity $ 23,378,200 $ 22,650,100
- ----------------------------------------------------------------- --------------------- ---------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
AVANT IMMUNOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE QUARTERS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
- ----------------------------------------------------------------- --------------------- ---------------------
<S> <C> <C>
OPERATING REVENUE:
Product Sales, Product Development and
Licensing Agreements $ 297,700 $ 411,300
- ----------------------------------------------------------------- --------------------- ---------------------
OPERATING EXPENSE:
Research and Development 1,855,500 1,764,900
General and Administrative 791,800 795,500
Amortization of Goodwill 318,900 133,000
Charge for Purchased In-Process Research and Development -- 44,630,000
- ----------------------------------------------------------------- --------------------- ---------------------
Total Operating Expense 2,966,200 47,323,400
- ----------------------------------------------------------------- --------------------- ---------------------
Operating Loss (2,668,500) (46,912,100)
Non-Operating Income, Net 116,500 144,000
- ----------------------------------------------------------------- --------------------- ---------------------
Net Loss $ (2,552,000) $ (46,768,100)
- ----------------------------------------------------------------- --------------------- ---------------------
Basic and Diluted Net Loss Per Common Share $ (0.06) $ (1.35)
- ----------------------------------------------------------------- --------------------- ---------------------
Weighted Average Common Shares Outstanding 43,134,600 34,722,000
- ----------------------------------------------------------------- --------------------- ---------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
AVANT IMMUNOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
- ----------------------------------------------------------------- --------------------- ---------------------
<S> <C> <C>
OPERATING REVENUE:
Product Sales, Product Development and
Licensing Agreements $ 1,483,500 $ 1,082,200
- ----------------------------------------------------------------- --------------------- ---------------------
OPERATING EXPENSE:
Research and Development 5,693,900 4,235,700
General and Administrative 2,736,000 2,107,200
Amortization of Goodwill 1,138,500 133,000
Charge for Purchased In-Process Research and Development -- 44,630,000
Legal Settlement -- (165,600)
- ----------------------------------------------------------------- --------------------- ---------------------
Total Operating Expense 9,568,400 50,940,300
- ----------------------------------------------------------------- --------------------- ---------------------
Operating Loss (8,084,900) (49,858,100)
Non-Operating Income, Net 434,900 374,000
- ----------------------------------------------------------------- --------------------- ---------------------
Net Loss $ (7,650,000) $ (49,484,100)
- ----------------------------------------------------------------- --------------------- ---------------------
Basic and Diluted Net Loss Per Common Share $ (0.18) $ (1.65)
- ----------------------------------------------------------------- --------------------- ---------------------
Weighted Average Common Shares Outstanding 42,732,400 30,025,900
- ----------------------------------------------------------------- --------------------- ---------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
AVANT IMMUNOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
- ----------------------------------------------------------------- --------------------- ---------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (7,650,000) $ (49,484,100)
Adjustments to Reconcile Net Loss to Net Cash
Used by Operating Activities:
Depreciation and Amortization 1,692,900 428,800
Write-off of Capitalized Patent Costs -- 12,300
Gain on Sale of Equipment -- (20,000)
Returned Stock -- (165,600)
Charge for Purchased In-Process Research and
Development -- 44,630,000
Net Change in Current Assets and Current Liabilities (1,294,600) (3,223,600)
- ----------------------------------------------------------------- --------------------- ---------------------
Net Cash Used by Operating Activities (7,251,700) (7,822,200)
- ----------------------------------------------------------------- --------------------- ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Property and Equipment (580,400) (149,200)
Proceeds from the Sale of Equipment -- 23,000
Redemption of Marketable Securities 4,903,100 1,500,700
Other Noncurrent Assets (133,000) (281,100)
(Increase) Decrease in Restricted Cash 100,000 (670,000)
Cash Received from Purchase of Virus Research
Institute, Inc. -- 4,391,500
- ----------------------------------------------------------------- --------------------- ---------------------
Net Cash Provided by Investing Activities 4,289,700 4,814,900
- ----------------------------------------------------------------- --------------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Exercise of Stock Options 28,100 10,300
Net Proceeds from Stock Issuance 9,845,400 3,711,200
- ----------------------------------------------------------------- --------------------- ---------------------
Net Cash Provided by Financing Activities 9,873,500 3,721,500
- ----------------------------------------------------------------- --------------------- ---------------------
Increase in Cash and Cash Equivalents 6,911,500 714,200
Cash and Cash Equivalents at Beginning of Period 8,937,200 6,436,300
- ----------------------------------------------------------------- --------------------- ---------------------
Cash and Cash Equivalents at End of Period $ 15,848,700 $ 7,150,500
- ----------------------------------------------------------------- --------------------- ---------------------
Supplemental Cash Flow Information
Non-cash Investing Activities:
Securities Issued for Acquisition of Virus Research
Institute, Inc. $ -- $ 60,665,500
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE>
AVANT IMMUNOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(1) NATURE OF BUSINESS
AVANT Immunotherapeutics, Inc. ("AVANT" or the "Company") is a
biopharmaceutical company engaged in the discovery, development and
commercialization of products that harness the human immune response to prevent
and treat disease. The Company's lead therapeutic program is focused on
compounds that inhibit the inappropriate activity of the complement cascade
which is a vital part of the body's immune defense system. The Company is also
engaged in the development of Therapore-TM-, a novel system for the delivery of
immunotherapeutics for chronic viral infections and certain cancers. The Company
and its collaborators are developing vaccines using proprietary adjuvants for
the prevention of influenza, Lyme disease, and respiratory syncytial virus
(RSV). The Company is also developing its own proprietary vaccine for the
management of atherosclerosis and, in a further collaboration, is developing an
oral human rotavirus vaccine.
The condensed consolidated financial statements include the accounts of
AVANT Immunotherapeutics, Inc. and its wholly owned subsidiary, T Cell
Diagnostics, Inc. All intercompany transactions have been eliminated.
(2) INTERIM FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements for the
three and nine months ended September 30, 1999 and 1998 include the consolidated
accounts of the Company, and have been prepared in accordance with generally
accepted accounting principles and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. In the opinion of management, the information
contained herein reflects all adjustments, consisting solely of normal recurring
adjustments, that are necessary to present fairly the financial positions at
September 30, 1999 and December 31, 1998, the results of operations for the
three and nine months ended September 30, 1999 and 1998, and the cash flows for
the nine months ended September 30, 1999 and 1998. The results of operations for
the three and nine months ended September 30, 1999 are not necessarily
indicative of results for any future interim period or for the full year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted, although the Company believes that the disclosures
included are adequate to make the information presented not misleading. The
condensed consolidated financial statements and the notes included herein should
be read in conjunction with footnotes contained in the Company's Annual Report
on Form 10-K/A for the year ended December 31, 1998.
(3) ISSUANCE OF COMMON STOCK
In September 1999, the Company completed a private placement of
approximately 5,459,400 shares of common stock to institutional investors at
$1.92 per share. Net proceeds from the offering totaled approximately
$9,838,700. The Company believes that cash inflows from existing SBIR grants
and collaborations, interest income from invested funds and its current cash
and cash equivalents, which includes the proceeds from the private placement,
will be sufficient to meet estimated working capital requirements and fund
operations through 2000. The working capital requirements of the Company are
dependent on several factors including, but not limited to, the costs
associated with research and development programs, preclinical and clinical
studies, and the timing and scope of collaborative arrangements.
7
<PAGE>
(4) NET LOSS PER SHARE
Consistent with SFAS 128, basic loss per share amounts are based on the
weighted average number of shares of common stock outstanding during the period.
Diluted loss per share amounts are based on the weighted average number of
shares of common stock and the potential common stock outstanding during the
period. The Company has excluded 5,329,896 and 5,356,667 of potential common
stock shares from the calculation of diluted weighted average share amounts for
the three and nine month periods ended September 30, 1999 and 1998 respectively,
as its inclusion would have been anti-dilutive.
8
<PAGE>
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: STATEMENTS CONTAINED IN THE FOLLOWING, ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, THAT ARE NOT
HISTORICAL FACTS ARE FORWARD-LOOKING STATEMENTS AS THE TERM IS DEFINED UNDER THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS ARE SUBJECT TO
A VARIETY OF RISKS AND UNCERTAINTIES. THERE ARE A NUMBER OF IMPORTANT FACTORS
THAT COULD CAUSE THE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN
ANY FORWARD-LOOKING STATEMENTS MADE BY THE COMPANY. THESE FACTORS INCLUDE, BUT
ARE NOT LIMITED TO: (I) THE COMPANY'S ABILITY TO SUCCESSFULLY COMPLETE PRODUCT
RESEARCH AND DEVELOPMENT, INCLUDING PRE-CLINICAL AND CLINICAL STUDIES, AND
COMMERCIALIZATION; (II) THE COMPANY'S ABILITY TO OBTAIN SUBSTANTIAL ADDITIONAL
FUNDING; (III) THE COMPANY'S ABILITY TO OBTAIN REQUIRED GOVERNMENTAL APPROVALS;
(IV) THE COMPANY'S ABILITY TO ATTRACT MANUFACTURING, SALES, DISTRIBUTION AND
MARKETING PARTNERS AND OTHER STRATEGIC ALLIANCES; AND (V) THE COMPANY'S ABILITY
TO DEVELOP AND COMMERCIALIZE ITS PRODUCTS BEFORE ITS COMPETITORS.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company is engaged in the discovery, development and
commercialization of products that harness the human immune response to prevent
and treat disease. The Company's products derive from a broad set of
complementary technologies with the ability to inhibit the complement system,
regulate T and B cell activity, and enable the creation and delivery of
preventative and therapeutic vaccines. The Company is using these technologies
to develop vaccines and immunotherapeutics that prevent or treat disease caused
by infectious organisms, and drugs and treatment vaccines that modify
undesirable activity by the body's own proteins or cells.
During the quarter ended September 30, 1999, the Company initiated an
open-label, Phase I/II clinical trial of its lead investigational drug, the
complement inhibitor TP10. The trial is being conducted in 15 infants (under 12
months of age) undergoing cardiac surgery for congenital heart defects. The
study, which is being conducted at Duke University Medical Center, will evaluate
the ability of TP10 to mitigate the injury to the heart and other organs that
occurs when patients are placed on cardiopulmonary bypass circuits (CPB), thus
potentially improving post-operative outcome.
In August 1999, the Company announced that Innogenetics, Inc.
("Innogenetics"), a subsidiary of Innogenetics NV, acquired the Company's TRAx
product line, including TRAx CD4, a diagnostic product used to measure the
number of CD4 cells in blood for HIV patients. The Company will receive a
combination of cash and royalty payments from Innogenetics in exchange for the
worldwide rights to sell, market and manufacture the TRAx product line, as well
as the patent and trademark portfolio.
In July 1999, Novartis Pharma AG, Basel, Switzerland ("Novartis")
exercised its option to license TP10 following extensive preclinical testing of
TP10 in its transplantation models. The exercise triggers a $6 million equity
investment and license payment, which the Company anticipates will occur during
the first quarter of 2000, subject to certain conditions being met. In October
1997, the Company had entered into an option agreement with Novartis relating to
the development of TP10 for use in xenotransplantation (animal organs into
humans) and allotransplantation (human organs into humans). The agreement
granted Novartis a two-year option to license TP10 with exclusive worldwide
marketing rights (except Japan) in the fields of xenotransplantation and
allotransplantation.
The Company received a milestone payment from SmithKline Beecham ("SB")
in June 1999 based on successful completion of a Phase II efficacy study in
infants of the Company's oral rotavirus vaccine and establishment of a
commercially viable process for manufacture of the vaccine. During 1997, the
Company established the collaboration with SB to develop and commercialize the
Company's rotavirus vaccine. Following the completion of the Phase II study, SB
has assumed responsibility for and will fund all subsequent clinical and other
development activities. The Company will be entitled to receive milestone
payments and royalties on vaccine sales under the agreement which grants SB
exclusive worldwide marketing rights to the rotavirus vaccine.
9
<PAGE>
In September 1999, the Company completed a private placement of
approximately 5,459,400 shares of AVANT common stock at $1.92 per share. Net
proceeds from the common stock issuance totaled approximately $9,838,700.
On August 21, 1998 the Company acquired Virus Research Institute, Inc.
("VRI"), a company engaged in the discovery and development of systems for the
delivery of vaccines and immunotherapeutics, and novel vaccines for adults and
children. The Company issued 14,036,400 shares of its common stock and warrants
to purchase 1,811,200 shares of its common stock in exchange for all of the
outstanding common stock of VRI, on the basis of 1.55 shares of AVANT's common
stock and .20 of an AVANT warrant for each share of VRI common stock.
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 1999 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1998 --
The Company reported a consolidated net loss of $2,552,000, or $.06 per share,
for the quarter ended September 30, 1999, compared to a net loss of $46,768,100,
or $1.35 per share, for the quarter ended September 30, 1998. The net loss for
the quarter ended September 30, 1998 includes a charge of $44,630,000 for
purchased in-process research and development ("IPR&D") related to the
acquisition of VRI in August 1998. Excluding the charge for IPR&D in 1998, the
net loss for the third quarter of 1999 increased $413,900, or 19.4%, to
$2,552,000, or $.06 per share, from $2,138,100, or $.06 per share. The increase
in net loss for the third quarter of 1999 compared to the third quarter of 1998
is primarily due to the increase in operating expense resulting from the
acquisition of VRI combined with an increase in the amortization of goodwill
from $133,000 for the quarter ended September 30, 1998, which reflects
amortization from August 21, 1998, the date of acquisition of VRI, through the
end of that quarter, to $318,900 for the same quarter in 1999.
Total operating revenue declined $113,600, or 27.6%, to $297,700 for
the quarter ended September 30, 1999 compared to $411,300 for the quarter ended
September 30, 1998 primarily due to a reduction in amounts received in
connection with Small Business Innovation Research ("SBIR") grants.
Excluding the $44,630,000 charge for IPR&D in the third quarter of
1998, total operating expense increased $272,800, or 10.1%, to $2,966,200 for
the third quarter of 1999 compared to $2,693,400 for the third quarter of
1998. The increase in operating expense is primarily due to expanded
operations resulting from the acquisition of VRI combined with the increase
in the amortization of goodwill. Research and development expense increased
$90,600, or 5.1%, to $1,855,500 for the third quarter of 1999 compared to
$1,764,900 for the same quarter of 1998. The increase in research and
development expense is due to increased spending associated with the
Company's vaccine for the management of atherosclerosis which began human
clinical trials during the second quarter of 1999 combined with costs
attributable to the Company's Therapore-TM- and novel polymer vaccine
delivery system programs. General and administrative expense declined $3,700,
or 0.5%, to $791,800 for the third quarter of 1999, compared to $795,500 for
the third quarter of 1998. Included in general and administrative expense for
the quarter ended September 30, 1999 is a gain on the sale of the Company's
TRAx-Registered Trademark product line. Excluding this gain, general and
administrative expense increased slightly, primarily due to increased patent
legal costs.
Non-operating income, consisting solely of interest income, decreased
$27,500, or 19.1%, to $116,500 for the third quarter of 1999 compared to
$144,000 for the third quarter of 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998 -- The Company reported a net loss of $7,650,000, or $0.18 per share, for
the nine months ended September 30, 1999, compared to a net loss of $49,484,100,
or $1.65 per share, for the nine months ended September 30, 1998. Included in
the net loss for 1998 is a charge of $44,630,000 for purchased IPR&D related to
the acquisition of VRI in August 1998. Excluding the charge for IPR&D in 1998,
the net loss of the Company increased $2,795,900, or 57.6%, to $7,650,000, or
$0.18 per share, for the nine month period ended September 30, 1999 from
$4,854,100, or $0.16 per share, for the same period in 1998.
Total operating revenue increased $401,300, or 37.1%, to $1,483,500 for
the nine month period ended September 30, 1999 compared to $1,082,200 for the
same period in 1998. The increase is primarily
10
<PAGE>
due to a milestone payment received in 1999 under the Company's agreement with
SB based on the Company's successful completion of a Phase II efficacy study of
its oral rotavirus vaccine and SB's establishment of a commercially viable
manufacturing process for the vaccine. Partially offsetting this increase is a
reduction in revenue derived from SBIR grants.
Excluding the $44,630,000 charge for IPR&D in 1998, total operating
expense increased $3,258,100, or 51.6%, to $9,568,400 for the nine months ended
September 30, 1999 compared to $6,310,300 for the nine months ended September
30, 1998. The increase in operating expense is primarily due to expanded
operations resulting from the acquisition of VRI combined with an increase in
goodwill amortization of $1,005,500, or 756.0%, from $133,000 for the period
ended September 30, 1998 to $1,138,500 for the period ended September 30, 1999.
Research and development expense increased $1,458,200, or 34.4%, to $5,693,900
compared to $4,235,700 for the same period in 1998, primarily due to increased
spending associated with the Company's vaccine for the management of
atherosclerosis which began human clinical trials during the second quarter of
1999, combined with costs attributable to the Company's Therapore-TM- and novel
polymer vaccine delivery system programs. General and administrative expense
increased $628,800, or 29.8%, to $2,736,000 for the nine months ended September
30, 1999, compared to $2,107,200 for same period last year, primarily due to
increased patent legal expense combined with increased corporate development and
administrative support costs.
Non-operating income increased $60,900, or 16.3%, to $434,900 for the
nine months ended September 30, 1999 compared to $374,000 for the nine months
ended September 30, 1998. Interest income increased $79,500, or 22.4%, to
$434,900 for the nine months ended September 30, 1999, compared to $355,400 for
the nine months ended September 30, 1998. The increase in interest income is
primarily due to higher cash balances during the first half of 1999 compared to
the same period in 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company ended the third quarter of 1999 with cash and cash
equivalents of $15,848,700, compared to cash, cash equivalents and marketable
securities of $13,840,300 at December 31, 1998. The increase in cash is
primarily attributable to the cash received from the private placement in
September 1999, offset by net cash used in operations of $7,251,700 as well as
cash used for the acquisition of property and equipment of $580,400 for the nine
months ended September 30, 1999. In July 1999, Novartis exercised its option to
license TP10 following extensive preclinical testing of TP10 in its
transplantation models. The exercise triggers a $6 million equity investment and
license payment, which the Company anticipates will occur during the first
quarter of 2000, subject to certain conditions being met. In September 1999, the
Company completed a private placement of approximately 5,459,400 shares of
common stock at a price of $1.92 per share. Net proceeds from that private
placement totaled approximately $9,838,700. In March 1998, the Company completed
a private placement of approximately 2,043,000 shares of common stock to
institutional investors at a price of $1.90 per share. Net proceeds from that
private placement totaled approximately $3,699,900.
The Company believes that cash inflows from existing SBIR grants and
collaborations, interest income from invested funds, and its current cash and
cash equivalents, net of restricted amounts, will be sufficient to meet
estimated working capital requirements and fund operations through 2000. The
working capital requirements of the Company are dependent on several factors
including, but not limited to, the costs associated with research and
development programs, preclinical and clinical studies, and the scope of
collaborative arrangements. The Company has decided to delay clinical trials of
a Therapore-TM- -formulated melanoma immunotherapeutic vaccine which had earlier
been scheduled for late 1999. During 2000, the Company intends to take steps to
raise additional capital by various means including, but not limited to,
licensing of technology programs with existing or new collaborative partners,
possible business combinations, or issuance of common stock via private
placement and public offering.
11
<PAGE>
THE STATEMENTS IN THE FOLLOWING SECTION INCLUDE THE "YEAR 2000
READINESS DISCLOSURE" WITHIN THE MEANING OF THE YEAR 2000 INFORMATION AND
READINESS DISCLOSURE ACT.
YEAR 2000
THIS SECTION CONTAINS CERTAIN STATEMENTS THAT ARE FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS
AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THE
COMPANY'S YEAR 2000 COMPLIANCE, AND THE EVENTUAL AFFECTS OF THE YEAR 2000 ON THE
COMPANY MAY BE MATERIALLY DIFFERENT THAN CURRENTLY PROJECTED. THIS MAY BE DUE
TO, AMONG OTHER THINGS, DELAYS IN THE IMPLEMENTATION OF THE COMPANY'S YEAR 2000
PLAN AND THE FAILURE OF KEY THIRD PARTIES WITH WHOM THE COMPANY HAS A
SIGNIFICANT BUSINESS RELATIONSHIP TO ACHIEVE YEAR 2000 COMPLIANCE.
The "Year 2000" issue affects computer systems that have date sensitive
programs that may not properly recognize the year 2000. Systems that do not
properly recognize such information could generate data or cause a system to
fail, resulting in business interruption. The Company is currently developing a
plan to provide assurances that its computer systems are Year 2000 compliant,
and expects full compliance by the end of 1999. Given the relatively small size
of the Company's internal systems and the relatively new hardware, software and
operating systems, management does not anticipate any significant delays in
becoming Year 2000 compliant. Further, management believes at present that the
costs associated with modifications to become Year 2000 compliant will be
immaterial to the Company's continued internal operations.
The Year 2000 issue is expected to affect the systems of various
entities with which the Company interacts, including the Company's research and
development partners, suppliers and vendors. The Company's assessment of third
parties risks and responses to those risks is not complete. There can be no
assurance that the systems of other companies on which the Company's system rely
will be timely converted, or that a failure by another company's system to be
Year 2000 compliant would not have a material adverse affect on the Company's
business, operating results and financial condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In January 1997, the Securities and Exchange Commission issued
Financial Reporting Release No. 48, which expands the disclosure requirements
for certain derivatives and other financial instruments. The Company does not
utilize derivative financial instruments.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
None
B. REPORTS ON FORM 8-K
During the quarter ended September 30, 1999, the following
report on Form 8-K was filed: Form 8-K dated September 21,
1999 reporting the issuance of a press release by AVANT
Immunotherapeutics, Inc. announcing the private offering of
approximately 5,459,400 unregistered securities at $1.92 per
share.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AVANT IMMUNOTHERAPEUTICS, INC.
BY: /s/ UNA S. RYAN
--------------------------------
Una S. Ryan, Ph.D.
President and
Chief Executive Officer
Dated: November 15, 1999
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED FINANCIAL STATEMENTS OF AVANT IMMUNOTHERAPEUTICS, INC. FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 15,848,700
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,635,300
<PP&E> 4,602,100
<DEPRECIATION> (3,341,000)
<TOTAL-ASSETS> 23,378,200
<CURRENT-LIABILITIES> 2,034,100
<BONDS> 0
0
0
<COMMON> 48,000
<OTHER-SE> 20,945,100
<TOTAL-LIABILITY-AND-EQUITY> 23,378,200
<SALES> 0
<TOTAL-REVENUES> 1,483,500
<CGS> 0
<TOTAL-COSTS> 9,568,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (434,900)
<INCOME-PRETAX> (7,650,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,650,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,650,000)
<EPS-BASIC> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
