SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
[X] SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
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.
(f/k/a T Cell Sciences, Inc.)
(Exact name of registrant as specified in its charter)
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Delaware 13-3191702
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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119 Fourth Avenue, Needham, Massachusetts 02494
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (781) 433-0771
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
common stock, par value $.001
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of common stock held by non-affiliates as of March 1,
1999 was $57,134,276 (excludes shares held by directors and executive officers).
Exclusion of shares held by any person should not be construed to indicate that
such person possesses the power, direct or indirect, to direct or cause the
actions of the management or policies of the Registrant, or that such person is
controlled by or under common control with the Registrant. The number of shares
of common stock outstanding at March 1, 1999 was: 42,532,100 shares.
Documents Incorporated by Reference
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 6, 1999, are incorporated by reference into Part
III of this Form 10-K.
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Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995: Statements contained in this report, including Part I, Item 1: Business,
that are not historical facts may be forward-looking statements that 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 registrant. These factors include,
but are not limited to: (i) the registrant's ability to successfully complete
product research and development, including pre-clinical and clinical studies,
and commercialization; (ii) the registrant's ability to obtain substantial
additional funding; (iii) the registrant's ability to obtain required
governmental approvals; (iv) the registrant's ability to attract manufacturing,
sales, distribution and marketing partners and other strategic alliances; and
(v) the registrant's ability to develop and commercialize its products before
its competitors.
PART I
Item 1. BUSINESS
A. General
AVANT Immunotheraputics, Inc. (f/k/a "T Cell Sciences, Inc.," herein referred to
as the "Company" or "AVANT") is a biopharmaceutical company that uses novel
applications of immunology to prevent and treat diseases caused by both the
enemy within (autoimmune diseases, cardiovascular diseases, cancer and
inflammation) and the enemy without (infectious diseases and organ transplant
rejection). Each of the Company's products address large market opportunities
for which current therapies are inadequate or non-existent.
On August 21, 1998, AVANT acquired Virus Research Institute, Inc., a Delaware
corporation ("VRI"), pursuant to an Agreement and Plan of Merger dated as of May
12, 1998 (the "Agreement") by and among the Registrant, TC Merger Corp., a
Delaware corporation and wholly-owned subsidiary of the Registrant and VRI.
Under the terms of the Agreement, VRI became a wholly-owned subsidiary of AVANT.
AVANT'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.
Complement Inhibitors: AVANT is developing a new class of therapeutics that
inhibit the complement system, a key triggering mechanism for the inflammatory
response. Medical problems that result from excessive complement activation
represent multi-billion dollar market opportunities. These include reperfusion
injury -- the vascular and tissue damage that occurs following a heart attack,
stroke or surgical procedure where the patient's blood supply is shut off and
then restored; hyperacute or chronic organ rejection following transplantation;
acute inflammatory injury to the lungs; autoimmune diseases; and Alzheimer's
disease. In a Phase I/II trial, AVANT's first complement product, TP10,
demonstrated positive clinical efficacy and safety in patients with reperfusion
injury following lung transplantation. The Company is also in preclinical
development with a second complement inhibitor, TP20, which inhibits neutrophils
and can be targeted to specific sites.
Atherosclerosis Treatment Vaccine: AVANT is developing a novel treatment vaccine
aimed at increasing levels of high-density lipoprotein (HDL, or so-called "good"
cholesterol). Low levels of HDL are associated with an increased risk of
atherosclerosis, which in turn leads to heart disease and stroke, among other
health problems. The vaccine stimulates the production of antibodies to
cholesteryl ester transfer protein (CETP), which mediates the balance between
HDL and low-density lipoprotein (LDL, or "bad" cholesterol). In preclinical
studies, the CETP vaccine increased HDL levels and significantly reduced
atherosclerotic lesions in blood vessels as compared with an untreated control
group. AVANT plans to initiate clinical trials of its CETP vaccine during the
first half of 1999.
T Cell Regulators: Based on 15 years of research, AVANT has developed a
world-leading understanding of the T cell-mediated immune response and the
signal transduction pathways involved in its control. The T cell antigen
receptor (TCAR) program, now under development by Astra AB ("Astra"), aims to
treat autoimmune diseases by selectively inhibiting disease-causing immune cells
without impairing normal immune functions.
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Vaccines and Immunotherapeutics: AVANT is developing both preventive vaccines
against important human pathogens, and treatment vaccines and immunotherapeutics
that fight disease by turning the immune system against chronic viral
infections, cancerous cells, or harmful proteins made by the body itself.
Preventative Vaccines for Infectious Diseases: The Company has developed several
novel delivery technologies that address shortcomings in currently available
delivery methods as well as provide new methods of vaccine delivery. These
vaccine delivery systems, which are based on a novel polymer (Adjumer(TM) and
Micromer(TM) vaccines) have the potential to improve existing injectable
vaccines and to permit intranasal and oral vaccine delivery. The Company
currently has several vaccines in clinical development on its own and with
corporate partners.
Immunotherapeutics: Therapore(TM) is a proprietary technology that uses an
injectable bacterial protein system to deliver protein and peptide antigens into
human cells in order to generate potent cell-mediated immune responses against
those antigens. The Company plans to employ Therapore(TM) to develop novel
immunotherapeutics for the treatment of chronic viral infections and cancers.
AVANT expects to initiate human clinical trials of its first Therapore(TM)-based
product, a treatment vaccine for melanoma, in the first half of 1999.
B. Strategy
AVANT's strategy is to utilize its expertise to design and develop vaccine and
immunotherapeutic products that have significant and growing market potential;
to establish commercial alliances that permit funding of clinical development
and rapid commercialization; and to retain rights to certain important market
opportunities.
Develop Novel Vaccine and Immunotherapeutic Delivery Systems: AVANT is
developing a portfolio of vaccine and immunotherapeutic delivery systems to
address shortcomings in currently available delivery methods, as well as to
provide new methods of vaccine and immunotherapeutic product delivery. AVANT's
vaccine delivery systems, which are based on a novel polymer, have the potential
to improve existing injectable vaccines and to permit intranasal and oral
delivery of vaccines. These systems may be applicable to most of the vaccines in
routine use and may enable the introduction of new vaccines to prevent bacterial
or viral diseases for which there is currently no adequate treatment or
prevention. AVANT intends to pursue the broad application of its current vaccine
and immunotherapeutic delivery systems, as well as to continue to invest in the
development of new vaccine and immunotherapeutic delivery technologies.
Develop Proprietary Vaccines: AVANT is currently developing several proprietary
vaccines believed to have significant commercial promise. AVANT is continuing to
seek licenses for suitable antigens to be used to develop vaccines with a
significant market potential. AVANT believes that the development of its own
proprietary vaccines complements its development of novel vaccine and
immunotherapeutic delivery systems and that its ability to combine its vaccine
and immunotherapeutic delivery technology with its own proprietary antigens may
lead to the introduction of new vaccines and immunotherapeutic products with
significant competitive advantage.
Develop Immunotherapeutic Products: AVANT is developing Therapore(TM), a
proprietary technology that uses a bacterial protein system for the injectable
delivery of proteins and peptides to generate potent cell-mediated immune
responses. Based on preclinical research, including animal studies conducted to
date, AVANT believes that Therapore(TM) will be able to deliver both peptide and
protein antigens into human cells, which may lead to the development of potent
cell-mediated immune responses. AVANT believes Therapore(TM) could be a core
technology in the development of novel immunotherapeutic products and that the
development of these products complements its development of novel vaccine
delivery systems and proprietary vaccines. AVANT intends to pursue the broad
application of Therapore(TM) across the field of persistent viral infections and
certain cancers.
Establish Collaborations for Product Development and Commercialization: AVANT
has entered into and intends to seek additional collaborative agreements with
established vaccine and pharmaceutical companies to develop vaccines and
immunotherapeutic products utilizing AVANT's delivery systems and its
collaborators' antigens. By entering into these collaborations, AVANT believes
it may benefit from the antigen development work already performed by its
collaborators and from access to their extensive clinical testing capabilities,
wide distribution and marketing infrastructure and market
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presence. This strategy may permit AVANT to take advantage of the expertise of
its collaborators and thereby expedite commercialization of products
incorporating AVANT's technologies.
AVANT intends to seek collaborators who will assume responsibility for
completing clinical testing of certain of the Company's proprietary vaccines and
immunotherapeutics which are currently being developed by the Company and for
manufacturing and marketing those products. AVANT intends to develop such
proprietary vaccines and immunotherapeutics to a point at which such
collaborations could be established and could be commercially favorable to the
Company. AVANT believes that this strategy will allow the successful market
introduction of products incorporating AVANT's technologies without AVANT
incurring the substantial costs associated with Phase II and III clinical
development.
C. Therapeutic Drug Discovery Programs
1. Complement Inhibition
AVANT is developing a new class of therapeutics that inhibit a part of the
immune system called the complement system. The complement system is a series of
proteins that are important initiators of the body's acute inflammatory response
against disease, infection and injury. Excessive complement activation also
plays a role in certain persistent inflammatory conditions. When complement is
activated, it helps to identify and eliminate infectious pathogens and damaged
tissue. In certain situations, however, excessive complement activation may
destroy viable and healthy tissue and tissue which, though damaged, might
recover. This excessive response compounds the effects of the initial injury or
introduces unwanted tissue destruction in clinical situations such as organ
transplants, cardiovascular surgeries and treatment for heart attacks.
Independent, published studies have reported that AVANT's lead compound, TP10, a
soluble form of naturally occurring Complement Receptor 1, effectively inhibits
the activation of the complement cascade in animal models. AVANT believes that
regulation of the complement system could have therapeutic and prophylactic
applications in several acute and chronic conditions, including reperfusion
injury from surgery or ischemic disease, organ transplant, multiple sclerosis,
Alzheimer's disease, rheumatoid arthritis, and myasthenia gravis. In the United
States, several million people are afflicted with these complement-mediated
conditions.
AVANT started the complement program in 1988. From 1989 through 1994, TP10 was
under development in a joint program with SmithKline Beecham, p.l.c.
("SmithKline") and Yamanouchi Pharmaceutical Co. ("Yamanouchi"). During 1994,
AVANT and SmithKline negotiated various amendments to the agreement and, in
February 1995, the two companies agreed to a mutual termination by which AVANT
regained all rights to the program except for co-marketing rights in Japan,
which are retained by SmithKline and Yamanouchi.
Under AVANT's direction, in 1995 the first Phase I clinical trial of TP10 in 24
patients at risk for ARDS was completed. Results of this trial were presented in
October 1995 at The American College of Chest Physicians meeting. A second Phase
I safety trial for reperfusion injury was completed in December 1995 in 25
patients with first-time myocardial infarctions. This study was presented at the
American Heart Association's Joint Conference on Thrombosis, Arteriosclerosis
and Vascular Biology in February 1996. In each trial, TP10 demonstrated
excellent safety and pharmacokinetic profiles, had a terminal phase half-life of
at least 72 hours and was able to inhibit complement activity in a
dose-dependent manner.
Based on these favorable results, in January 1996, AVANT initiated a Phase IIa
trial in patients with established ARDS. This trial was an open-label,
single-dose feasibility trial to determine the potential for efficacy of TP10 in
reducing neutrophil accumulation in the lungs and improved clinical outcome of
patients with ARDS. During the second half of 1996, AVANT initiated a series of
steps, including broadening enrollment criteria, to modify this trial to improve
the rate of patient accrual. In December 1997, AVANT completed this Phase IIa
trial after it had enrolled nine patients with ARDS arising from a number of
different medical conditions. The trial results showed that patients receiving
TP10 tended towards improved respiratory performance and improved blood
oxygenation. Because the trial included few patients and no placebo control was
used, no definitive claims about efficacy could be made.
In August 1996, AVANT began enrollment in a Phase I/II clinical trial in
patients undergoing lung transplantation. A goal of the trial was to determine
the ability of TP10 to reduce reperfusion injury and improve lung function in
patients with
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end-stage pulmonary disease who were undergoing lung transplant surgery. This
study was a randomized, placebo-controlled, double-blind trial consisting of
single dosages of 10 mg/kg of TP10 as an intravenous infusion over 30 minutes.
The trial was conducted at multiple centers in North America and included a
total of 59 patients. In May 1997, AVANT announced the completion of patient
accrual. In October 1997, AVANT presented positive preliminary results from the
efficacy portion of the trial. In April 1998, AVANT presented final trial
results at the International Society of Heart and Lung Transplantation
conference. The final results showed that TP10 therapy appeared safe and well
tolerated and demonstrated significant efficacy. Treated patients undergoing
cardiopulmonary by-pass as part of the transplantation procedure showed
significantly decreased intubation time and time on ventilation and a trend
toward reduced time in the intensive care unit.
In October 1997, AVANT announced it had entered into a collaborative agreement
with Novartis Pharma AG, Basel, Switzerland ("Novartis") relating to the
development of TP10 for use in xenotransplantation (animal organs into humans)
and allotransplantation (human to human organ transplantation). Under the
agreement, AVANT will receive annual option fees and supplies of TP10 for
clinical trials, the combination of which is valued at up to approximately $5
million, in return for granting Novartis a two-year option to license TP10 with
exclusive worldwide (except Japan) marketing rights. Should Novartis exercise
its option to license TP10 and continue development, AVANT will receive an
equity investment, licensing fees and milestone payments based upon attainment
of certain development and regulatory goals, which has an approximate aggregate
value of up to $25 million. AVANT may also receive funding for research as well
as royalty payments on eventual product sales.
In addition to TP10, AVANT has identified other product candidates to inhibit
activation of the complement system. The lead candidate under research
evaluation is a form of sCR1, (TP10), which has been modified by the addition of
sLe(x) carbohydrate side chains ("sCR1sLe(x)"). sLe(x) is a carbohydrate which
mediates binding of neutrophils to selectin proteins, which appear on the
surface of activated endothelial cells as an early inflammatory event.
Selectin-mediated binding of neutrophils to activated endothelial cells is a
critical event in inflammation. The sCR1sLe(x) molecule has demonstrated
increased functional benefits in in vitro and early in vivo experiments. During
1996, AVANT confirmed the presence of the desired carbohydrate structures and
their function in in vivo experiments and confirmed the presence of both
anti-complement and selectin-binding functions in in vitro experiments. During
1997, AVANT produced additional sCR1sLe(x) material and began preclinical
studies in disease-relevant animal models.
sCR1sLe(x) may create new and expanded opportunities for AVANT in complement and
selectin- dependent indications such as stroke and myocardial infarction. AVANT
believes that sCR1sLe(x) has the ability to target the complement-inhibiting
activity of sCR1 to the site of inflammation and, at the same time, inhibit the
leukocyte/endothelial cell adhesion process.
2. CETP Vaccine
AVANT is developing a therapeutic vaccine against endogenous cholesteryl ester
transfer protein which may be useful in reducing risk factors for
atherosclerosis. CETP is a key intermediary in the balance of high-density
lipoprotein ("HDL") and low-density lipoprotein ("LDL"). AVANT is developing a
vaccine to stimulate an immune response against CETP which it believes may
improve the ratio of HDL to LDL cholesterol and reduce the progression of
atherosclerosis. AVANT has conducted preliminary studies of rabbits which had
been administered the CETP vaccine and fed a high-cholesterol, high-fat diet. In
these studies, vaccine-treated rabbits exhibited reduced lesions in their blood
vessels compared to a control group of untreated rabbits which developed
significant blood vessel lesions. These studies have demonstrated, in animal
models, AVANT's ability to break immune tolerance, produce autoreactive
antibodies to CETP and reduce the development of blood vessel lesions.
Atherosclerosis is one of the leading causes of morbidity and mortality in the
United States and most of the Western world. Current pharmacologic treatments
require daily administration and can result in high costs and poor patient
compliance. A vaccine directed at lowering CETP activity, such as the one being
developed by AVANT, may offer several advantages over conventional approaches,
including requiring less frequent dosing, lower costs, reduced side effects, and
improved patient compliance.
In September 1996, the National Institutes of Health (the "NIH") awarded AVANT a
$100,000, Phase I Small Business Innovation Research ("SBIR") grant for the
development of a novel transgenic rat atherosclerosis model, affording better
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comparison to human atherosclerosis. In February 1997, the NIH awarded AVANT a
second $100,000 Phase I SBIR grant to develop a novel plasmid-based vaccine to
prevent or treat atherosclerosis. In September 1997, AVANT was awarded a
$678,000 Phase II SBIR grant from the NIH which provides funding over a two year
period for the continued development of the novel transgenic rat model of
atherosclerosis. In January 1998, AVANT received a $96,000 Phase I SBIR grant
from the NIH for the development of a novel peptide vaccine to prevent or treat
atherosclerosis.
AVANT plans to initiate clinical trials of its CETP vaccine during the first
half of 1999.
3. T Cell Regulators
In early 1992, AVANT entered into a joint development program with Astra to
develop products resulting from AVANT's proprietary TCAR technology, which
utilizes T cell antigen receptor for selectively targeting T cells involved in
autoimmune diseases such as multiple sclerosis and rheumatoid arthritis. The
original agreement was modified in December 1993 with Astra assuming all
responsibility for the development of the lead antibody products and AVANT
retaining leadership of the first peptide product candidate. Under the original
and modified agreements, AVANT received funding support of approximately $15
million in the early years with the potential of up to $17 million of additional
funding based on clinical progress. By the end of 1995, AVANT had received
substantially all of the original funding payments.
In December 1996, AVANT amended its agreement with Astra to transfer certain of
its rights to the TCAR technology, including two therapeutic products, ATM027
and ATP012, to Astra, which is solely responsible for further clinical
development and commercialization. Under the amended agreement, AVANT could
receive royalties from product sales, as well as milestone payments which may
total up to $4 million as certain clinical milestones are achieved.
In June 1997, AVANT announced that it received a milestone payment from Astra as
one of the products derived from AVANT's TCAR program entered clinical trials
for the treatment of multiple sclerosis. In February 1998, Astra announced that
Phase I data has shown an effect on the target cells and that there have been no
serious adverse effects in the study to date. Astra initiated a Phase II study
in 1998.
D. Vaccines, Vaccine Delivery Systems and Immunotherapeutics
1. Overview
The Vaccine Market: Vaccines have long been recognized as a safe and
cost-effective method for preventing infection caused by certain bacteria and
viruses. The Centers for Disease Control and Prevention (the "CDC") have
estimated that every dollar spent on vaccination saves $16 in healthcare costs.
There are currently 23 vaccines in routine use in the United States against such
life-threatening infectious organisms as tetanus, diphtheria, poliovirus,
hepatitis A virus, hepatitis B virus, Haemophilus influenzae B, measles, mumps
and rubella. From 1990 to 1996, annual worldwide vaccine sales increased from
$1.6 billion to $4.0 billion, a compound annual growth rate of approximately
16.5%. AVANT believes that this growth rate may accelerate as a result of
advances in vaccine technologies and formulations that address the shortcomings
of existing vaccines. Areas of potential improvement include enhancement of
immune responses, which could lead to a reduction in the number of doses
required for effective protection as well as effective immunization in a higher
percentage of the population, and delivery of vaccines through methods other
than injection. The vaccine market is expected to expand due to the introduction
of new vaccines utilizing purified antigens, produced as a result of advances in
molecular biology. AVANT also believes that the growing awareness and incidence
of certain infectious diseases, such as H. pylori, hepatitis C virus, HIV1 and
HSV2 infection, together with the availability of new vaccines, could further
expand the vaccine market.
The Immune System and Vaccines: The function of the human immune system is to
respond to pathogens, including infectious bacteria and viruses, that enter the
body. However, a pathogen may establish an infection and cause disease before it
is eliminated by an immune response. Antibodies are produced as part of the
immune response to antigens, which are components of the pathogen. These
antibodies can continue to circulate in the human body for many years, providing
continued protection against reinfection by the same pathogen.
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Protective antibodies can be produced in both the systemic and mucosal branches
of the immune system. The systemic immune system produces IgG antibodies to
protect against infection occurring in blood and deep tissue. The mucosal immune
system produces IgA antibodies that protect against infection occurring in the
mucosal layer lining the digestive, respiratory and genitourinary tracts.
Mucosal immunity may act as a first line of defense by attacking pathogens at
the point of entry into the body, prior to systemic penetration, as well as by
targeting certain pathogens such as H. pylori, influenza and rotavirus that
propagate exclusively at the mucosal layer.
Vaccines are a pre-emptive means of generating a protective antibody response. A
vaccine consists of either a weakened pathogen or pathogen-specific,
non-replicating antigens which are deliberately administered to induce the
production of antibodies. When weakened pathogens are used as a vaccine, they
replicate in the body, extending presentation to the immune system and inducing
the production of antibodies without causing the underlying disease. When
non-replicating antigens are used as a vaccine, they must be delivered in
sufficient quantity and remain in the body long enough to generate an effective
antibody response. To achieve this goal, many vaccines require multiple
administrations. Of the 23 vaccines currently in routine use, 20 are delivered
by injection and stimulate only systemic immunity. Only polio, typhoid and
rotavirus vaccines can be administered orally and induce both a mucosal and a
systemic immune response. Both of these vaccines are live, weakened pathogens
that localize in the intestines and do not require a separate vaccine delivery
system.
Adjuvants: The antigens contained in many injectable vaccines will not produce
an immune response sufficient to confer protection against infection and require
the use of an adjuvant to sustain the presentation of the antigens to the human
immune system. Alum (aluminum hydroxide) is the only adjuvant currently approved
by the United States Food and Drug Administration (the "FDA") for commercial use
in humans. While alum has gained widespread use, it does not sufficiently
enhance the immune response to permit administration of many existing injected
vaccines in a single dose. In the case of certain vaccines, such as influenza,
alum is ineffective as an adjuvant.
AVANT believes that alum may not prove to be sufficiently effective for use with
a number of the new purified recombinant antigens being developed. Further, alum
cannot be used for mucosal delivery of vaccines. Accordingly, AVANT believes
that there is a significant need for a new adjuvant that is safe, works with a
wide variety of antigens, and induces a protective immune response with only one
or two injections. These attributes could result in certain benefits, including
cost savings and improved patient compliance.
2. Vaccine and Immunotherapeutic Delivery Systems
AVANT is developing a portfolio of proprietary vaccine delivery systems designed
to improve the efficacy of existing vaccines, and permit the development of new
vaccines and immunotherapeutics for the prevention and/or treatment of
infectious diseases and certain cancers.
The following table summarizes AVANT's two main vaccine delivery systems and
Therapore(TM):
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DELIVERY DELIVERY POTENTIAL
SYSTEM COMPOSITION METHOD BENEFITS (1) STATUS (1)
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Adjumer(TM) Water Soluble Injectable Enhanced systemic Phase II influenza
Polymer immune response; conducted; analysis
fewer injections of results ongoing
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Micromer(TM) Polymer Intranasal or oral Systemic and mucosal Late state preclinical
Microparticles immune response; no development
injection
Therapore(TM) Genetically Injectable Enhanced cell-mediated Preclinical research
Engineered immunity
Bacterial Protein
Vector
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(1) The summary information included in the above table is qualified in its
entirety by the detailed discussion of each of the vaccine and immunotherapeutic
delivery systems that follows, and which appears under "3. Vaccine and
Immunotherapeutic Development Programs" below.
3. Vaccine and Immunotherapeutic Development Programs
Adjumer(TM): AVANT is developing Adjumer(TM), a proprietary vaccine delivery
system, as an adjuvant to enhance the immune response to injected vaccines. The
water soluble nature of Adjumer(TM), which utilizes a polyphosphazene polymer
("PCPP"), facilitates a simple aqueous-based manufacturing process for vaccines,
thereby preserving the integrity of the antigen.
In preclinical studies conducted by AVANT, Adjumer(TM) demonstrated sustained
presentation of influenza, hepatitis B, HSV2, HIV1 and tetanus antigens to the
immune system. In those preclinical studies, single intramuscular injections of
Adjumer(TM)-formulated vaccines elicited a higher immune response than both
alum-formulated vaccines and non-adjuvanted vaccines as measured by resulting
IgG antibody levels. In additional preclinical studies, an
Adjumer(TM)-formulated influenza vaccine using lower antigen doses sustained
higher antibody levels over a longer time period than both alum-formulated
vaccines and non-adjuvanted vaccines. In certain other preclinical studies
Adjumer(TM)-formulated vaccines produced an effective immune response in a
higher percentage of animals than in animals receiving existing vaccine
formulations. Furthermore, in these studies, as well as tests conducted using
Adjumer(TM) alone, AVANT observed no material adverse reactions when Adjumer(TM)
was administered at effective levels.
Based on these preclinical results, AVANT believes that an
Adjumer(TM)-formulated vaccine may provide a number of benefits over existing
injected vaccines. These benefits include reducing the number of doses required
for an effective immune response, thereby improving compliance; providing cost
savings as a result of the reduction in the number of doses and the amount of
antigen required; and increasing the time period over which immune protection
can be sustained. In addition, based on the results of these preclinical
studies, AVANT believes that an Adjumer(TM)-formulated vaccine may be able to
induce an immune response in a number of subjects who would not otherwise
respond to existing vaccines. The first human clinical trials of a vaccine using
Adjumer(TM) as a delivery system commenced in 1996.
AVANT and Pasteur Merieux Connaught ("PMC"), the leading worldwide supplier of
influenza vaccine, are currently collaborating on the development of an
Adjumer(TM)-formulated vaccine for influenza. Influenza accounts for an average
of 20,000 deaths annually in the United States; the greatest number of
fatalities occur among the elderly. In preclinical studies conducted by AVANT
and PMC, an Adjumer(TM)- formulated influenza vaccine produced a significantly
enhanced and longer-lived immune response than one of the influenza vaccines
currently on the market. PMC completed Phase I human clinical trials of the
Adjumer(TM)-formulated influenza vaccine in France during 1997. A total of 48
young and 41 elderly adults participated in this study, which was designed to
measure the safety and level of immune response to the vaccine. Based on the
results of the study, which showed the Adjumer(TM)-formulated vaccine was well
tolerated and elicited improved responses, a Phase II safety and immunogenicity
study was initiated by PMC during 1997. A total of 430 elderly adults
participated in the Phase II study, which was conducted in Peru. Preliminary
results of the Phase II clinical trial confirmed that the Adjumer(TM)-formulated
vaccine was well tolerated. However, results of the Phase II study appear to be
inconsistent in certain respects with Phase I results. The degree of improvement
in immune responses elicited by the Adjumer(TM) influenza vaccine was less in
comparison to the control group than was elicited in the Phase I study. In the
Phase II study the control group receiving the unadjuvanted vaccine generated
higher immune responses than observed
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in the Phase I study control group. AVANT and PMC are currently analyzing and
assessing the results of the Phase II study to determine the appropriate next
steps to take with the clinical development of the product.
PMC is continuing to investigate the use of Adjumer(TM) in other vaccines.
During the fourth quarter of 1998, PMC initiated a Phase I trial of an
Adjumer(TM)-formulated vaccine for RSV. Initiation of the trial resulted in a
milestone payment by PMC. AVANT understands that PMC plans to initiate a Phase I
trial of an Adjumer(TM)-formulated vaccines for Lyme disease in early 1999.
Rotavirus Vaccine: AVANT is also developing a novel vaccine against rotavirus
infection. Rotavirus, a major cause of diarrhea and vomiting in infants, affects
approximately 80% of the approximately 4 million infants born each year in the
United States. As a result, on an annual basis, about 500,000 infants require
medical attention and 50,000 are hospitalized. The economic burden in the United
States is estimated at over $1 billion in direct and indirect costs. AVANT
anticipates that in the United States a vaccine against rotavirus disease will
become a universal pediatric vaccine. AVANT has completed Phase I clinical
trials of the orally delivered live human rotavirus vaccine selected to elicit a
broadly protective immune response to the most prevalent strains of rotavirus.
During 1997, AVANT completed a Phase I/II clinical trial designed to define the
optimal vaccine dose and optimal age for immunization. Based on the assessment
of the safety and immunogenicity of the vaccine, AVANT initiated a Phase II
efficacy study in 1997. This trial, conducted at four U.S. medical centers, was
designed to examine the vaccine's ability to prevent rotavirus disease and to
further study the safety of the vaccine. A total of 215 infants were enrolled in
the study and have been immunized with the vaccine. In August 1998, the company
announced positive results from this trial. The results showed that
approximately 90 percent of the vaccinated infants were protected from rotavirus
disease and demonstrated a statistical significance at p<0.001. Examination of
the safety data revealed only mild transient symptoms in a small number of
infants.
As discussed under "F. Collaborative Agreements", subject to the successful
completion of the Phase II clinical trial and the development by SmithKline of a
viable manufacturing process, SmithKline will assume financial responsibility
for all subsequent clinical and development activities.
Micromer(TM): AVANT is conducting ongoing research on Micromer(TM), a
proprietary vaccine delivery system designed to facilitate the mucosal
(intranasal or oral) delivery of antigens and stimulate both the systemic and
mucosal branches of the immune system.
In preclinical studies conducted by AVANT, several Micromer(TM)-formulated
antigens delivered intranasally elicited both a mucosal ("IgA") immune response
and a systemic ("IgG") immune response. IgA antibodies were detected at all
mucosal sites, and the level of IgG antibodies was comparable to the level
obtained through Adjumer(TM)-formulated injections of the same antigen. A
Micromer(TM)-formulated influenza vaccine required only a single, intranasal
dose to provide an immune response sufficient to protect the animals against
subsequent infection by the influenza virus. In addition to conducting further
research on the Micromer(TM)-formulated influenza vaccine, AVANT has commenced
research on additional Micromer(TM)-formulated vaccines. AVANT is currently
conducting animal studies in preparation for a Phase I trial of a
Micromer(TM)-formulated influenza vaccine.
Therapore(TM): During 1997, AVANT received an exclusive worldwide license to
Therapore(TM) from Harvard College. AVANT believes that Therapore(TM) will be
the core of a novel technology for the development of immunotherapeutics. AVANT
is conducting preclinical research to evaluate this system for the treatment of
persistent viral infections, such as Hepatitis B, Hepatitis C and HIV, and
certain cancers including melanoma.
Therapore(TM) is composed of two bacterial proteins that in in vitro tests have
delivered peptides or proteins into human cells to utilize normal cellular
processes to induce potent cell-mediated immune responses. These responses
include the generation of long-lived cytotoxic T-lymphocytes ("CTL") and
alterations in the amounts of cellular cytokines produced. Both responses are
considered necessary for the effective treatment of persistent viral infections
and the resolution of certain cancers. Potential products utilizing
Therapore(TM) technology could include peptides or proteins from viruses such as
Hepatitis B, Hepatitis C and HIV, all of which cause persistent infections, and
from a range of cancers, including breast, colon, lung, melanoma and prostate.
Each of these indications represents a large market with a need for safe and
effective treatments.
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Early stage preclinical research studies indicate that Therapore(TM) may be
distinguished from other delivery systems. AVANT believes that the therapeutic
and preventative potential of Therapore(TM) is significant for two reasons: (i)
the targeting of Therapore(TM) is highly efficient, such that in in vitro tests
potent cell-mediated immune responses have been induced by the delivery of
minute quantities of Therapore(TM) constructs; and (ii) Therapore(TM) has the
potential to deliver large peptides and proteins for processing by normal
cellular mechanisms, which may permit broad immune coverage in humans. As a
result of these characteristics, AVANT believes that Therapore(TM)-delivered
antigens will be capable of producing an enhanced cell-mediated response with
fewer injections than other products currently under development by AVANT's
competitors.
AVANT is currently conducting animal studies in preparation for a Phase I trial
of a Therapore(TM)-formulated Melanoma immunotherapeutic vaccine during the
second half of 1999.
E. Diagnostic Business
In March 1996, AVANT realigned certain of its operations and sold the operations
and research product line of its wholly-owned subsidiary, T Cell Diagnostics,
Inc. to Endogen, Inc. ("Endogen") for $3.0 million, while retaining AVANT's
TRAx(R) diagnostic product franchise. AVANT received a five year convertible
subordinated note for $2.0 million combined with approximately $1.0 million used
to repay obligations under AVANT's operating lease. AVANT recognized a gain on
this transaction of $0.3 million. On February 10, 1997, AVANT received
approximately $1.8 million following the conversion of the remaining balance of
the Endogen note into shares of Endogen common stock, which were subsequently
sold.
AVANT is currently focusing its efforts on establishing a partnership for the
TRAx(R) technology.
F. Collaborative Agreements
Novartis: In October 1997, AVANT announced it had entered into a collaborative
agreement with Novartis relating to the development of TP10 for use in
xenotransplantation (animal organs into humans) and allotransplantation (human
to human organ transplantation). Under the agreement, AVANT will receive annual
option fees and supplies of TP10 for clinical trials, the combination of which
is valued at up to approximately $5 million, in return for granting Novartis a
two-year option to license TP10 with exclusive worldwide (except Japan)
marketing rights. Should Novartis exercise its option to license TP10 and
continue development, AVANT will receive an equity investment, licensing fees
and milestone payments based upon attainment of certain development and
regulatory goals, which has an approximate aggregate value of up to $25 million.
AVANT may also receive funding for research as well as royalty payments on
eventual product sales.
Yamanouchi: AVANT started its complement program in 1988. From 1989 through
1994, TP10 was under development in a joint program pursuant to an agreement
with SmithKline and Yamanouchi. During 1994, AVANT and SmithKline negotiated
various amendments to the agreement and, in February 1995, the two companies
agreed to a mutual termination by which AVANT regained all rights to the program
except for co-marketing rights in Japan, which are retained by SmithKline and
Yamanouchi.
Pasteur Merieux Connaught: AVANT is a party to two license agreements entered
into in December 1994 and August 1995 with PMC relating to Adjumer(TM)- and
Micromer(TM)-formulated vaccines, respectively, for the prevention of a variety
of infectious diseases. Under the agreements PMC has been granted the exclusive
right to make, use and sell Adjumer(TM)- and Micromer(TM)-formulated vaccines
for prevention of influenza, Lyme disease and diseases caused by meningococcus
and the co-exclusive right (exclusive, except for the right of AVANT or one
other person licensed by AVANT) to make, use and sell Adjumer(TM)- and
Micromer(TM)-formulated vaccines directed against five other pathogens,
including pneumococcus and RSV. The licenses to PMC apply to specified
territories, including North and South America, Europe, Africa, Thailand and the
countries of the former Soviet Union. AVANT has retained rights to make, use,
sell and license Adjumer(TM)- and Micromer(TM)-formulated vaccines against the
subject infections in most of the Far East, including China and Japan, subject
to certain geographical extension rights available to PMC.
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PMC made a $3.0 million equity investment in AVANT in December 1994 upon the
execution of the agreement relating to Adjumer(TM). In addition, in connection
with this collaboration, in 1996 PMC made milestone payments of $4.5 million to
AVANT and an additional equity investment of $1.0 million in AVANT. During 1998,
PMC made a further milestone payment to AVANT upon initiation of a Phase I trial
using an Adjumer(TM)-formulated vaccine for RSV. Contingent upon achieving
certain milestones, PMC has agreed to pay AVANT up to an additional $6.2 million
in connection with the development of Adjumer(TM)-formulated vaccines for
influenza and Lyme disease. Contingent upon achieving certain milestones, PMC
has also agreed to make payments, on a product by product basis with respect to
the development of other Adjumer(TM)- and Micromer(TM)-formulated vaccines. PMC
is required to fund all costs associated with the development and
commercialization, including the costs of clinical trials, of any vaccines it
elects to develop utilizing AVANT's technology. In addition, AVANT will be
entitled to royalties based on net sales of any vaccine products developed and
sold by PMC pursuant thereto.
In connection with its agreement relating to Micromer(TM), PMC sponsored
research at AVANT into Micromer(TM)-formulated vaccines directed against
influenza and parainfluenza virus ("PIV"). This arrangement, pursuant to which
AVANT received $2.5 million, covered a two-year period that ended in 1997.
Under the agreement relating to Adjumer(TM), AVANT was required to use
commercially reasonable efforts to establish a process capable of yielding
quantities of clinical grade PCPP for use by PMC in clinical studies. AVANT has
satisfied this requirement. In addition, AVANT has facilitated the production of
commercial grade PCPP in a contractor's current Good Manufacturing Practice
("cGMP") compliant manufacturing facility according to agreed upon
specifications. The PMC agreement, while reserving to PMC the right to
manufacture PCPP, anticipates that AVANT will supply PCPP under a cost-plus
supply agreement.
Pasteur Merieux-Oravax: AVANT has a collaborative arrangement with Pasteur
Merieux-Oravax ("PM-O") for the use of its VibrioVec(TM) bacterial delivery
system. The agreement grants to PM-O a worldwide license to use VibrioVec(TM)
for the delivery of specific H. pylori antigens. A license issue fee as well as
research support payments totaling $1.0 million, has been paid to AVANT under
this agreement. The agreement also provides for future milestone payments and
royalties on net sales of any future products developed by PM-O. An option
previously granted to PM-O for the use of PCPP in the delivery of H. pylori
vaccines has expired.
SmithKline: During 1997, AVANT entered into an agreement with SmithKline to
collaborate on the development and commercialization of AVANT's oral rotavirus
vaccine. Rotavirus infection causes acute diarrhea and dehydration in infants.
Under the terms of the agreement, SmithKline received an exclusive worldwide
license to commercialize AVANT's rotavirus vaccine. AVANT was responsible for
continuing the Phase II clinical efficacy study of the rotavirus vaccine which
was completed in August 1998. Subject to the development by SmithKline of a
viable manufacturing process, SmithKline is required to assume responsibility
for all subsequent clinical trials and all other development activities.
SmithKline made an initial license payment in 1997 upon execution of the
agreement and has agreed to make further payments upon the achievement of
certain milestones. In addition, AVANT will be entitled to royalties based on
net sales of the rotavirus vaccine.
Heska Corporation: In January 1998, AVANT entered into an agreement with Heska
Corporation ("Heska") whereby Heska was granted the right to use PCPP in certain
animal health vaccines. The agreement provides for the payment of license fees,
milestone and royalties based on net sales of PCPP-formulated animal vaccines.
G. Competition
Competition in the biotechnology and vaccine industries is intense. AVANT faces
competition from many companies in the United States and abroad, including a
number of large pharmaceutical companies, firms specialized in the development
and production of vaccines, adjuvants and vaccine and immunotherapeutic delivery
systems and major universities and research institutions. Most of AVANT's
competitors have substantially greater resources, more extensive experience in
conducting preclinical studies and clinical testing and obtaining regulatory
approvals for their products, greater operating experience, greater research and
development and marketing capabilities and greater production
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capabilities than those of AVANT. There can be no assurance that AVANT's
competitors will not develop technologies and products that are safer or more
effective than any which are being developed by AVANT or which would render
AVANT's technology and products obsolete and noncompetitive, and AVANT's
competitors may succeed in obtaining FDA approval for products more rapidly than
AVANT. There can be no assurance that the vaccines and immunotherapeutic
products under development by AVANT and its collaborators will be able to
compete successfully with existing products or products under development by
other companies, universities and other institutions or that they will obtain
regulatory approval in the United States or elsewhere. AVANT believes that the
principal competitive factors in the vaccine and immunotherapeutic market are
product quality, measured by efficacy and safety, ease of administration and
price.
AVANT's competitive position will also depend upon its ability to attract and
retain qualified personnel, obtain patent protection or otherwise develop
proprietary products or processes and secure sufficient capital resources for
the often lengthy period between technological conception and commercial sales.
H. Manufacturing
AVANT has no manufacturing facilities, no experience in volume manufacturing and
plans to rely upon collaborators or contractors to manufacture its proposed
products for both clinical and commercial purposes. AVANT believes that there is
currently sufficient capacity worldwide for the production of its potential
products by AVANT's collaborators or through contract manufacturers.
To date, AVANT has been arranging with contract manufacturers for the
manufacture of PCPP in quantities sufficient for preclinical and clinical
studies, and for clinical trial supplies of AVANT's rotavirus vaccine candidate.
If commercialized, manufacture of the AVANT rotavirus vaccine will be the
responsibility of SmithKline, which has received from AVANT a world-wide
exclusive license to commercialize this vaccine.
AVANT has a contract for the development and initial supply of the starting
materials for PCPP but does not yet have a written contract with a manufacturer
for commercial production of PCPP. AVANT has facilitated the production of
commercial grade PCPP in a contractor's cGMP manufacturing facility according to
agreed upon specifications. The PMC agreement, while reserving to PMC the right
to manufacture PCPP, anticipates that AVANT will supply PCPP under a cost-plus
supply agreement. AVANT has also entered into an arrangement with an academic
institution for process development related to its Therapore(TM) system. The
manufacturing processes for AVANT's other vaccine and immunotherapeutic delivery
systems and vaccines utilize known technologies. AVANT believes that the
products it currently has under development can be readily scaled up to permit
manufacture in commercial quantities. However, there can be no assurance that
AVANT will not encounter difficulties in scaling up the manufacturing processes.
AVANT intends to establish manufacturing arrangements with manufacturers that
comply with the FDA's requirements and other regulatory standards, although
there can be no assurance that AVANT will be able to do so. In the future, AVANT
may, if it becomes economically attractive to do so, establish its own
manufacturing facilities to produce any vaccine products that it may develop. In
order for AVANT to establish a manufacturing facility, AVANT will require
substantial additional funds and will be required to hire and retain significant
additional personnel and comply with the extensive cGMP regulations of the FDA
applicable to such facility. The product manufacturing facility would also need
to be licensed for the production of vaccines by the FDA.
I. Marketing
Under the terms of existing and future collaborative agreements, AVANT relies
and expects to continue to rely on the efforts of its collaborators for the sale
and marketing of its products. There can be no assurance that AVANT's
collaborators will market vaccine products incorporating AVANT's technologies,
or, if marketed, that such efforts will be successful. The failure of AVANT's
collaborators to successfully market products would have an adverse effect on
AVANT's business.
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AVANT has retained, and in the future intends to retain, marketing rights to
certain of its vaccine and immunotherapeutic delivery systems and vaccine
candidates in selected geographic areas and for specified indications. AVANT
intends to seek marketing and distribution agreements and/or co-promotion
agreements for the distribution of its products in such territories and for such
indications. AVANT believes that these arrangements could enable AVANT to
generate a higher level of financial return than might be obtained from early
stage licensing and collaboration agreements. AVANT has no marketing and sales
staff and limited experience relating to vaccine marketing. If AVANT determines
in the future to engage in direct marketing of vaccine products, it will be
required to recruit an experienced marketing group and incur significant
additional expenditures. There can be no assurance that AVANT will be able to
establish a successful marketing force.
J. Patents, Licenses and Proprietary Rights
AVANT's policy is to protect its technology by filing patent applications and
obtaining patent rights covering its own technology, both in the United States
and in foreign countries. In addition, AVANT has acquired and will seek to
acquire as needed or desired, exclusive rights of others through assignment or
license to complement its portfolio of patent rights. AVANT also relies on trade
secrets, unpatented know-how and technological expertise and innovation to
develop and maintain its competitive position.
Patents: The successful development and marketing of products by AVANT will
depend in part on its ability to create and maintain intellectual property,
including patent rights. AVANT has established a proprietary patent position in
the areas of complement inhibitor technology, vaccine technologies and
diagnostic technologies, and it is the owner or exclusive licensee of numerous
patents and pending applications around the world. Although AVANT continues to
pursue patent protection for its products, no assurance can be given that any
pending application will issue as a patent, that any issued patent will have a
scope that will be of commercial benefit, or that AVANT will be able to
successfully enforce its patent position against competitors.
In the area of complement molecules, AVANT is co-owner with The Johns Hopkins
University and Brigham & Women's Hospital, whose rights AVANT has exclusively
licensed, of patents and application covering inventions relating to complement
receptor type 1 (CR1). These rights are based in part on the work of Dr. Douglas
Fearon and include U.S. and foreign patents which claim nucleic acid sequences
encoding CR1, sCR1 and active fragments; purification methods; and therapeutic
uses of sCR1. AVANT also owns or has rights to a number of other issued patents
and patent applications relating to sCR1, sCR1sLe(x) and other complement
inhibitor molecules and their uses.
In April 1996, AVANT announced that it had licensed portions of its patent and
technology rights regarding CR1 to CytoTherapeutics, Inc. ("CytoTherapeutics")
for use in protecting CytoTherapeutics' proprietary cell-encapsulation products
for the delivery of therapeutic substances to the central nervous system.
In December 1996, AVANT amended its agreement with Astra to transfer certain of
its patent rights and licenses to the TCAR technology to Astra. This transfer
includes patent applications which have resulted to date in U.S. patents
covering the DNA, proteins, protein fragments and antibodies relating to the
Alpha TCAR and the DNA, full-length proteins and antibodies relating to Beta
TCAR, and two European patents covering Beta TCAR inventions. In addition, AVANT
has transferred recent filings on T cell antigen receptor inventions resulting
from the partnership with Astra.
In the area of diagnostics, AVANT is the owner of several patents relating to
TRAx(R) CD4 and CD8 and other applications of the TRAx(R) product technologies.
The first U.S. patent covering the TRAx(R) CD4 and CD8 products issued on June
11, 1996. In February 1998, AVANT received a notice of allowance of claims for
the U.S. patent and Trademark Office for a patent application covering the
TRAx(R) Test Kit.
In the area of vaccine technology, AVANT owns issued U.S. patents and
corresponding foreign applications directed to the use of vaccines incorporating
AVANT's Adjumer(TM) vaccine delivery technology, and directed to the use of
vaccines incorporating AVANT's Micromer(TM) vaccine delivery technology.
Further, AVANT owns and has licensed other U.S. patents and patent applications,
and corresponding foreign applications, directed to technology that may be
useful for AVANT's Micromer(TM) and Adjumer(TM) vaccine delivery systems. AVANT
has an exclusive license to a United States
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patent application, and corresponding foreign applications, directed to a vector
construct that is used in AVANT's VibrioVec(TM) vaccine delivery system; AVANT
has an exclusive license to an issued U.S. patent directed to a rotavirus strain
antigen which forms the basis of AVANT's rotavirus vaccine; and AVANT has an
exclusive license to a U.S. patent application, and corresponding foreign
applications, directed to a defective HSV2 virus for use in AVANT's vaccine
directed against genital herpes. AVANT also has an exclusive license to U.S.
patent applications directed to technology that may be useful for AVANT's
Therapore(TM) system. AVANT has also filed patent applications in the U.S. and
selected foreign countries relating to control of CETP activity through
vaccination.
There can be no assurance that patent applications owned by or licensed to AVANT
will result in granted patents or that, if granted, the resultant patents will
afford protection against competitors with similar technology. It is also
possible that third parties may obtain patent or other proprietary rights that
may be necessary or useful to AVANT. In cases where third parties are first to
invent a particular product or technology, it is possible that those parties
will obtain patents that will be sufficiently broad to prevent AVANT from using
certain technology or from further developing or commercializing certain vaccine
and immunotherapeutic systems and vaccine candidates. If licenses from third
parties are necessary but cannot be obtained, commercialization of the covered
products might be delayed or prevented.
Although a patent has a statutory presumption of validity in the United States,
the issuance of a patent is not conclusive as to validity or as to the
enforceable scope of the patent claims. Thus, there can be no assurance that
AVANT's issued patents or any patents subsequently issued to or licensed by
AVANT will not be successfully challenged in the future. The validity or
enforceability of a patent after its issuance by the Patent and Trademark Office
can be challenged in litigation. If the outcome of the litigation is adverse to
the owner of the patent, third parties may then be able to use the invention
covered by the patent without payment. There can be no assurance that AVANT's
patents will not be infringed or that the coverage of its patents will not be
successfully avoided by competitors through design innovation.
AVANT is aware that others, including universities and companies, have filed
patent applications and have been granted patents in the United States and other
countries which claim subject matter potentially useful or necessary to the
commercialization of AVANT's products. The ultimate scope and validity of
existing or future patents which have been or may be granted to third parties,
and the availability and cost of acquiring rights in those patents necessary to
the manufacture, use or sale of AVANT's products presently cannot be determined
by AVANT.
AVANT uses a mutated Vibrio cholerae in its VibrioVec(TM) vaccine delivery
system. AVANT is aware of an issued U.S. patent which claims a culture of
mutated Vibrio cholerae. AVANT believes that only one claim (the "Claim") of the
patent may be pertinent to the company's VibrioVec(TM) system. The remaining
claims of the patent cover other cultures which AVANT believes are not pertinent
to VibrioVec(TM). AVANT has received an opinion of counsel from Fish &
Richardson, P.C. that, based on the analysis set forth in their opinion and the
facts known to them, the Claim is invalid. It should be noted that a party
challenging validity of a patent has the burden of proving invalidity and that
the outcome of any litigation cannot be predicted with certainty. Accordingly,
there can be no assurance that, if litigated, a court would conclude that the
Claim is invalid.
In addition, AVANT is aware of a foreign patent with claims that could conflict
with AVANT's vaccine candidates and vaccine delivery systems. AVANT believes
that the relevant claims under this patent do not extend to or restrict AVANT's
activities, however there can be no assurance that a foreign court would reach
the same conclusion. AVANT is also aware of an issued U.S. patent relating to
the same technology covered by a patent application to which it has been granted
an exclusive license and therefore anticipates that it will be involved in an
interference proceeding prior to marketing its herpes vaccine.
In addition to the patents referred to in the previous two paragraphs, there may
be other patent applications and issued patents belonging to competitors that
may require AVANT to alter its vaccine candidates and vaccine and
immunotherapeutic delivery systems, pay licensing fees or cease certain
activities. If the Company's product candidates conflict with patents that have
been or may be granted to competitors, universities or others, the patent owners
could bring legal actions against AVANT claiming damages and seeking to enjoin
manufacturing and marketing of the patented products. If any such actions are
successful, in addition to any potential liability for damages, AVANT could be
required to obtain a license in order to continue to manufacture or market the
affected products. There can be no assurance that AVANT would prevail in any
such action or that any license required under any such third party patent would
be made
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available on acceptable terms or at all. AVANT believes that there may be
significant litigation in the biotechnology and vaccine industries regarding
patent and other intellectual property rights. If AVANT becomes involved in such
litigation, it could consume substantial resources.
Licenses: AVANT has entered into several significant license agreements relating
to technology that is being developed by AVANT and/or its collaborators,
including licenses from: Massachusetts Institute of Technology covering certain
proprietary technologies for vaccine delivery related to PCPP microparticles;
Penn State Research Foundation covering the production of polyphosphazene
polymer; Harvard College relating to proprietary technology involving
genetically altered Vibrio and Salmonella typhi strains; Cincinnati Children's
Hospital involving proprietary rights and technologies relating to an attenuated
rotavirus strain for a rotavirus vaccine; Harvard College and the Dana Farber
Cancer Institute relating to a genetically-altered HSV2 virus for use in a
genital herpes virus vaccine; and Harvard College for the proprietary technology
related to Therapore(TM), a novel immunotherapy delivery system to be developed
for delivery of products for the treatment of persistent viral infections and
certain cancers. In general, these institutions have granted AVANT an exclusive
worldwide license (with right to sublicense) to make, use and sell products
embodying the licensed technology, subject to the reservation by the licensor of
a non-exclusive right to use the technologies for non-commercial purposes.
Generally, the term of each license is through the expiration of the last of the
patents issued with respect to the technologies covered by the license. AVANT
has generally agreed to use reasonable efforts to develop and commercialize
licensed products and to achieve certain milestones and pay license fees,
milestone payments and royalties based on the net sales of the licensed products
or to pay a percentage of sublicense income. If AVANT breaches its obligations,
the licensor has the right to terminate the license, and, in some cases, convert
the license to a non-exclusive license.
Proprietary Rights: AVANT also relies on unpatented technology, trade secrets
and confidential information, and no assurance can be given that others will not
independently develop substantially equivalent information and techniques or
otherwise gain access to AVANT's know-how and information, or that AVANT can
meaningfully protect its rights in such unpatented technology, trade secrets and
information. AVANT requires each of its employees, consultants and advisors to
execute a confidentiality agreement at the commencement of an employment or
consulting relationship with AVANT. The agreements generally provide that all
inventions conceived by the individual in the course of employment or in
providing services to AVANT and all confidential information developed by, or
made known to, the individual during the term of the relationship shall be the
exclusive property of AVANT and shall be kept confidential and not disclosed to
third parties except in limited specified circumstances. There can be no
assurance, however, that these agreements will provide meaningful protection for
AVANT's information in the event of unauthorized use or disclosure of such
confidential information.
K. Government Regulation
AVANT's activities and products are significantly regulated by a number of
governmental entities, including the FDA in the United States and by comparable
authorities in other countries. These entities regulate, among other things, the
manufacture, testing, safety, effectiveness, labeling, documentation,
advertising and sale of AVANT's products. Product development within this
regulatory framework takes a number of years and involves the expenditure of
substantial resources. Many products that initially appear promising ultimately
do not reach the market because they are found to be unsafe or ineffective when
tested.
In the United States, vaccines and immunotherapeutics for human use are subject
to FDA approval as "biologics" under the Public Health Service Act and "drugs"
under the Federal Food, Drug and Cosmetic Act. The steps required before a new
product can be commercialized include: preclinical studies in animals, clinical
trials in humans to determine safety and efficacy and FDA approval of the
product for commercial sale.
The FDA provides that human clinical trials may begin thirty (30) days after
receipt and review of an Investigational New Drug ("IND") application, unless
the FDA requests additional information or changes to the study protocol within
that period. Authorization to conduct a clinical trial in no way assures that
the FDA will ultimately approve the product. Clinical trials are usually
conducted in three sequential phases; in a Phase I trial, the product is given
to a small number of healthy volunteers to test for safety (adverse effects).
Phase II trials are conducted on a limited group of the target patient
population; safety, optimal dosage and efficacy are studied. A Phase III trial
is performed in a large patient population over a wide geographic area to prove
that significant efficacy exists. The FDA has ongoing oversight over all these
trials
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and can order a temporary or permanent discontinuation if that action is
warranted. Such an action could materially and adversely affect AVANT.
The results of the clinical trials and all supporting data are submitted to the
FDA for approval. A Biologics License Application ("BLA") is submitted for a
biologic product; a New Drug Application (an "NDA") for a drug product. The
interval between IND filing and BLA/NDA filing is usually at least several years
due to the length of the clinical trials; and the BLA/NDA review process can
take over a year. During this time the FDA may request further testing,
additional trials or may turn down the application. Even with approval, the FDA
frequently requires post-marketing safety studies (known as Phase IV trials) to
be performed.
The FDA requires that the manufacturing facility that produces a licensed
product meet certain standards, undergo an inspection and obtain an
establishment license prior to commercial marketing.
The Advisory Committee on Immunization Practices ("ACIP") of the CDC has a role
in setting the public market in the United States for the vaccine products AVANT
intends to develop. The ACIP makes recommendations on the appropriate use of
vaccines and related products and the CDC develops epidemiologic data relevant
to vaccine requirements and usage.
To market its products abroad, AVANT is subject to varying foreign regulatory
requirements. Although international efforts are being made to harmonize these
requirements, applications must currently be made in each country. The data
necessary and the review time varies significantly from one country to another.
Approval by the FDA does not ensure approval by the regulatory bodies of other
countries.
AVANT's collaborators are subject to all of the above-described regulations in
connection with the commercialization of products utilizing AVANT's technology.
L. Product Liability
The testing and marketing of vaccines and immunotherapeutics entail an inherent
risk of product liability attributable to unwanted and potentially serious
health effects. If and when AVANT manufactures vaccines which are recommended
for routine administration to children, AVANT will be required to participate in
the National Vaccine Injury Compensation Program. This program compensates
children having adverse reactions to certain routine childhood immunizations
with funds collected through an excise tax from the manufacturers of these
vaccines.
AVANT has clinical trial liability insurance coverage in the amount of $3
million. However, there can be no assurance that such insurance coverage is or
will continue to be adequate or available. AVANT intends to seek product
liability insurance coverage prior to commercialization of its product
candidates but there can be no assurance that insurance will be available at all
or in sufficient amounts to protect AVANT at a reasonable cost.
M. Employees; Scientific Consultants
As of March 1, 1999, the Company employed 53 full time persons, 20 of whom have
doctoral degrees. Of these employees, 43 were engaged in or directly supported
research and development.
AVANT has also retained a number of scientific consultants and advisors in
various fields and has entered into consulting agreements with each of them.
These consultants include the following members of the Scientific Advisory
Board: Dr. Mark Davis, Stanford University; Dr. Tak Mak, Ontario Cancer
Institute; Dr. Peter Ward, University of Michigan School of Medicine; Dr. Hans
Wigzell, Karolinska Institute; Dr. Peter Henson, National Jewish Center for
Immunology and Respiratory Medicine; Dr. Peter Libby, Brigham and Women's
Hospital; and Dr. Robert Langer, Massachusetts Institute of Technology.
-16-
<PAGE>
Item 2. PROPERTIES
The Company leases approximately 54,000 square feet of laboratory and office
space in Needham, Massachusetts, of which it subleases approximately 13,000
square feet of excess laboratory and office space to a tenant and an additional
4,000 square feet of excess office space to a second tenant. The lease has an
initial term of six years which expires in April 2002. Under the lease
agreement, the Company is obligated to pay a base annual rent of $756,400 until
the end of the initial term. The sublease relating to the 13,000 square feet of
excess space has an initial term of four years which expires in April 2000.
Under the sublease agreement, the Company will receive base annual subrental
income of $133,600 until the end of the initial term. The sublease relating to
the 4,000 square feet of excess space has an initial term of eighteen months
which expires October 1999. Under the sublease agreement, the Company will
receive base annual subrental income of $88,000 until the end of the initial
term. Aggregate net base rental payments for the years ended December 31, 1998
and 1997 for this facility were $662,000 and $594,400, respectively.
The Company also leases approximately 17,800 square feet of laboratory and
office space in Cambridge, Massachusetts. The lease has a five year term, which
commenced on December 1, 1996. Under the lease agreement, the Company is
obligated to pay a base annual rent of $293,700 until the end of the lease term.
Effective February 1, 1999, the Company sublet the entire Cambridge,
Massachusetts facility through the end of the lease term. Under the sublease
agreement, the Company will receive base annual subrental income of $431,700 of
which approximately $36,000 will be payable to the landlord as additional rent.
Item 3. LEGAL PROCEEDINGS
AVANT is not a party to any legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
-17-
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
AVANT's Common Stock began trading on the Nasdaq National Market (the "Nasdaq")
under the symbol "AVAN" on August 24, 1998. Prior to that date, the Company was
traded on the Nasdaq under the symbol "TCEL". The following table sets forth for
the periods indicated the high and low closing sales prices for the Company's
common stock as reported by Nasdaq.
<TABLE>
<CAPTION>
Fiscal Period High Low
<S> <C> <C>
Year Ended December 31, 1997
1Q (Jan. 1 - March 31, 1997) $2.38 $1.47
2Q (April 1 - June 30, 1997) 2.09 1.28
3Q (July 1 - Sep. 30, 1997) 2.34 1.38
4Q (Oct. 1 - Dec. 31, 1997) 3.16 1.75
Year Ended December 31, 1998
1Q (Jan. 1- March 31, 1998) $2.94 $1.81
2Q (April 1 - June 30, 1998 4.50 2.38
3Q (July 1 - Sept. 30, 1998) 2.81 1.19
4Q (Oct. 1 - Dec. 31, 1998) 1.78 1.06
</TABLE>
As of March 1, 1999, there were approximately 716 shareholders of record of the
Company's common stock. The price of the common stock was $1.50 as of the close
of the market on March 1, 1999. The Company has not paid any dividends on its
common stock since its inception and does not intend to pay any dividends in the
foreseeable future. Declaration of dividends will depend, among other things,
upon the operating and future earnings of the Company, the capital requirements
of the Company and general business conditions.
-18-
<PAGE>
Item 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below for the years ended
December 31, 1998, 1997, 1996, 1995 and 1994 have been derived from the audited
consolidated financial statements of the Company. The results of operations for
1998 include the operating results of VRI from the date of acquisition, August
21, 1998 through December 31, 1998 (see Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations"). All amounts are in
thousands except per share data.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA Year Ended December 31,
=====================================================================================================================
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
OPERATING REVENUE:
Product Sales, Product Development
and Distribution Agreements $ 2,150 $ 1,192 $ 1,115 $ 3,963 $ 6,968
- ---------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSE:
Research and Development 5,703 5,257 6,036 8,005 8,697
Charge for Purchased In-Process
Research & Development 44,630 -- -- -- --
Other Operating Expense 4,377 3,494 6,832 7,821 9,365
- ---------------------------------------------------------------------------------------------------------------------
Total Operating Expense 54,710 8,751 12,868 15,826 18,062
- ---------------------------------------------------------------------------------------------------------------------
Non-Operating Income (Expense), Net 760 (5,549) 963 3,605 (490)
- ---------------------------------------------------------------------------------------------------------------------
Net Loss $(51,800) $ (13,108) $ (10,790) $ (8,258) $(11,584)
=====================================================================================================================
Basic and Diluted Net Loss Per
Common Share $ (1.56) $ (0.52) $ (0.50) $ (0.47) $ (0.68)
=====================================================================================================================
Weighted Average Common
Shares Outstanding 33,177 25,140 21,693 17,482 17,053
=====================================================================================================================
CONSOLIDATED BALANCE
SHEET DATA December 31,
=====================================================================================================================
1998 1997 1996 1995 1994
Working Capital $ 12,298 $ 4,629 $ 11,673 $ 11,208 $ 15,027
Total Assets 22,650 9,827 17,224 18,532 20,685
Other Long Term Obligations 563 750 -- 182 500
Accumulated Deficit (122,036) (70,237) (57,129) (46,339) (38,081)
Total Stockholders' Equity 18,770 6,316 15,619 16,000 17,586
</TABLE>
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. See Notes 1 and 2 to the Consolidated
Financials Statements for a description of the Company's use of other financial
instruments.
-19-
<PAGE>
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995: Statements contained in the following, Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations, that are not
historical facts may be forward-looking statements that 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 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
AVANT Immunotherapeutics' (f/k/a "T Cell Sciences, Inc.," herein referred to as
the "Company") principle activity since its inception has been research and
product development conducted on its own behalf, as well as through joint
development programs with several pharmaceutical companies. The Company was
incorporated in the State of Delaware in December 1983.
A significant portion of the Company's revenue has consisted of payments by
others to fund sponsored research, milestone payments under joint development
agreements, payments for material produced for preclinical studies, and sales of
test kits and antibodies. Certain portions of the collaborative payments are
received in advance, recorded as deferred revenue and recognized when earned in
later periods.
Inflation and changing prices have not had a significant effect on continuing
operations and are not expected to have any in the near future.
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.
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.
Pursuant to an Agreement and Plan of Merger dated as of May 12, 1998 VRI became
a wholly owned subsidiary of the Company. The Company issued 14,036,400 shares
of AVANT common stock and warrants to purchase 1,811,200 shares of AVANT 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 one share
of VRI common stock.
NEW DEVELOPMENTS
Preliminary results from a Phase I clinical trial of the humanized monoclonal
antibody, ATM027, in patients with multiple sclerosis became available in the
first quarter of 1998. ATM027 is one of the products derived from the Company's
T Cell Antigen Receptor (TCAR) program, now under development by Astra AB. The
results from the Phase I clinical trial show an effect on the target cells with
no serious adverse effects in the study to date. Astra initiated a Phase II
clinical trial for ATM027 in patients with multiple sclerosis in 1998.
Positive Phase I/II results of the Company's lead drug candidate, TP10, in
patients undergoing lung transplantation were presented by the Company in April
1998. Results in these patients showed that TP10 therapy appears safe and well
tolerated and demonstrated significant efficacy. TP10 is the Company's product
name for sCR1, a therapeutic compound which inhibits the complement system, a
key triggering mechanism for the inflammatory response. In October 1997 the
-20-
<PAGE>
Company entered into an agreement with Novartis Pharma AG, Basel, Switzerland
("Novartis") relating to the development of TP10 for use in xenotransplantation
(animal organs into humans) and allotransplantation (human organs into humans).
The Company 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 its second option fee payment in
November 1998 which initiates year two of the option agreement. If Novartis
exercises its option to license TP10, it will provide licensing fees, an equity
investment and the Company will be entitled to milestone payments and royalties
on product sales.
The Company announced positive results of its Phase II efficacy study of its
vaccine for the prevention of rotavirus disease in infants in August 1998.
Rotavirus is a major cause of acute diarrhea and dehydration in infants for
which there are currently no approved vaccines, although several are under
development. The rotavirus vaccine is being developed and commercialized in
collaboration with SmithKline Beecham ("SmithKline"). Following successful
completion of the Phase II trial, SmithKline will assume responsibility for and
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 SmithKline exclusive worldwide marketing rights to
the rotavirus vaccine.
The Company received a milestone payment of $600,000 from the Company's
collaborator Pasteur Merieux Connaught ("PMC") in the fourth quarter of 1998.
The Company is a party to two license agreements with PMC pursuant to which PMC
has been granted the exclusive and co-exclusive right (exclusive, except for the
right of the Company or one other person licensed by the Company) to make, use
and sell certain of the Company's vaccines. The milestone payment relates to a
Phase I clinical trial using the Company's Adjumer(TM)-formulated RSV vaccine
initiated by PMC in 1998.
RESULTS OF OPERATIONS
The Company reported a net loss of $51,799,700, or $1.56 per share, for the year
ended December 31, 1998, compared to a net loss of $13,108,000, or $.52 per
share, for the year ended December 31, 1997 and a net loss of $10,790,100, or
$.50 per share, for the year ended December 31, 1996. The net loss for the year
ended December 31, 1998, includes a charge of $44,630,000 for purchased
in-process research and development related to the acquisition of VRI in August
1998. The net loss for the year ended December 31, 1997 includes a charge of
$6,108,800 for the settlement of the Company's litigation with its former
landlord and the landlord's mortgagee. The net loss for the year ended December
31, 1996 includes a charge to earnings of $1,751,600 for the write-off of
certain capitalized patent costs relating to the Company's TCAR program and a
$425,300 charge resulting from a severance agreement with the Company's former
president and chief executive officer. Excluding the charge for purchased
in-process research and development in 1998, the charge for the settlement of
the Company's litigation in 1997 and the charges for the write-off of certain
capitalized patent costs and the severance agreement in 1996, the net loss for
1998 increased 2.4% to $7,169,700, or $.22 per share, compared to $6,999,200, or
$.28 per share, for 1997 and the net loss for 1997 decreased 18.7% from
$8,613,200, or $.40 per share in 1996. The weighted average common shares
outstanding used to calculate the net loss per common share was 33,177,200 in
1998, 25,139,900 in 1997 and 21,693,400 in 1996.
Operating Revenue
Total operating revenue increased $958,300, or 80.4%, to $2,150,400 in 1998 from
$1,192,100 in 1997 and increased $77,600, or 6.9%, in 1997 from $1,114,500 in
1996.
Product development and licensing revenue increased $946,900 in 1998, or 82.5%,
to $2,094,500 from $1,147,600 in 1997. Product development and licensing revenue
in 1998 consisted primarily of a $1,000,000 nonrefundable option fee associated
with the Company's agreement with Novartis, a milestone payment of $600,000 from
PMC and $494,500 received in connection with the Company's Small Business
Innovation Research grants ("SBIR"). In 1997, the Company recognized $250,000 of
a nonrefundable option fee from Novartis in product development and licensing
revenue, milestone payments totaling $650,000 from Astra and $247,600 received
in connection with the Company's SBIR grants. Product development and licensing
revenue increased $556,400, or 94.1%, in 1997 from $591,200 in 1996. Product
development and licensing revenue in 1996 consisted of $453,300 of TCAR project
funding from Astra and $37,900 received in connection with the Company's SBIR
grants.
-21-
<PAGE>
Product sales for 1998 and 1997 totaled $55,900 and $44,500, respectively, and
were derived from sales of the Company's TRAx(R) test kits. Product sales of
$523,300 in 1996 included sales of the Company's TRAx(R) test kits for the full
year combined with sales of research products prior to the sale of the research
products and operations of the Company's wholly-owned subsidiary, T Cell
Diagnostic, Inc. ("TCD"), in March 1996.
Operating Expense
Operating expense of $54,709,900 for 1998 included a charge of $44,630,000 for
purchased in-process research and development in connection with the acquisition
of VRI in August 1998. Excluding the purchased in-process research and
development charge, operating expense increased $1,329,100, or 15.2%, to
$10,079,900 for 1998 compared to $8,750,800 for 1997 and decreased $4,117,000,
or 32.0%, in 1997 from $12,867,800 in 1996. The increase in operating expense
for 1998 compared to 1997 is primarily due to four months of operations of VRI
combined with goodwill amortization expense of $546,400 and the write-off of
certain capitalized patent costs relating to the Company's TRAx(R) technology.
The decrease in operating expense for 1997 compared to 1996 is primarily due to
the charges for the write-off of certain capitalized patent costs and severance
agreement recognized in 1996, totaling $2,176,900, and lower legal costs as a
result of the settlement of the Company's litigation combined with lower costs
associated with Phase I and Phase I/II clinical trials initiated in 1996.
Research and development expense increased $446,200, or 8.5% in 1998, to
$5,703,100 from $5,256,900 in 1997. The increase in 1998 compared to 1997 is
primarily due to four months of operations of VRI, partially offset by costs
associated with Phase I and Phase I/II clinical trials of TP10 ongoing in 1997.
Research and development expense decreased $779,600, or 12.9%, in 1997 from
$6,036,500 in 1996. The decrease is primarily due to lower staff costs combined
with a reduction in costs associated with Phase I and Phase I/II clinical trials
of TP10 initiated in 1996. Included in research and development expense for 1996
is two months of TCD operations prior to the sale of the research products and
operations of TCD in March 1996.
General and administrative expense increased $335,200, or 9.7%, to $3,808,100 in
1998 compared to $3,472,900 in 1997. Included in general and administrative
expense is a charge of $294,500 for the write-off of certain capitalized patent
costs associated with the Company's TRAx(R) technology. Reductions in legal
costs in 1998 primarily due to the settlement of the Company's litigation in
1997 and lower consulting costs in 1998 compared to 1997 were offset by certain
general and administrative costs associated with four months of operations of
VRI. General and administrative expense decreased $2,999,700, or 46.3%, in 1997
compared to $6,472,600 in 1996. The decrease is primarily due to a $425,300
charge resulting from a severance agreement and a $1,751,600 write-off of
certain capitalized patent costs relating to the Company's TCAR technology in
1996. Lower legal costs in 1997 and reduced license fees resulting from the
transfer to Astra of certain of the Company's rights and responsibilities to the
TCAR technology in 1997 compared to 1996 also contributed to the decrease in
general and administrative expense in 1997 compared to 1996. In addition,
included in general and administrative expense for 1996 is two months of TCD
operations prior to the sale of the research products and operations of TCD in
March 1996.
Non-Operating Income and Expense
Non-operating income for 1998 was $759,800 compared to non-operating expense for
1997 of $5,549,300. Excluding a charge of $6,108,800 relating to the settlement
of the Company's then outstanding litigation in the third quarter of 1997,
non-operating income increased $200,300, or 35.8%, to $759,800 for 1998 compared
to $559,500 for 1997 and decreased $403,700, or 41.9% in 1997 from $963,200 in
1996. Interest income decreased $5,400, or 0.9%, to $571,900 for 1998 compared
to $577,300 for 1997, and decreased $102,900, or 15.1%, in 1997 compared to
$680,200 in 1996. The decreases in interest is primarily due to lower cash
balances combined with lower interest rates in 1998 and 1997. In May 1998, the
Company used cash as collateral for a $750,000 note due November 15, 1999 issued
in connection with a settlement agreement with its former landlord and the
landlord's mortgagee. In accordance with the settlement agreement, 66,250 shares
of the Company's common stock issued to secure the note were returned to the
Company. The common stock was valued at $165,600 as of October 31, 1997 and its
return is included in non operating-income in 1998. In 1996, non-operating
expense included a $283,000 gain recognized from the sale of the research
products and operations of TCD in March 1996.
-22-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and marketable securities at December 31,
1998 was $13,840,300 compared to $6,436,300 at December 31, 1997. Cash used in
operations was $8,852,000 in 1998 compared to $7,695,400 in 1997 and $9,675,800
in 1996.
In March 1998, the Company completed a private placement of approximately
2,043,500 shares of common stock to institutional investors at a price of $1.90
per share. Net proceeds from the common stock issuance totaled approximately
$3,699,800.
In November 1997, the Company reached a settlement of the litigation with its
former landlord and the landlord's mortgagee. As part of the settlement, the
Company agreed to pay $858,800 in cash on November 17, 1997 and issue a total of
1,500,000 shares of its common stock. In addition, the Company signed a note for
$750,000, due on November 16, 1998 secured by $750,000 cash and a note for
$750,000 due November 15, 1999 secured by 132,500 shares of common stock. The
total settlement, valued at $6,108,800, is comprised of the cash and notes
totaling $2,358,800 and common stock valued at $3,750,000 as of October 31,
1997. The common stock is subject to restrictions on transfer in accordance with
the settlement agreement. The settlement agreement also provides for certain
registration rights for the shares of common stock to become effective no later
than September 30, 1998. Upon such registration, however, the settlement
agreement limits the number of shares that may be sold over a given period of
time. In May 1998, in accordance with the settlement agreement, the Company
elected to secure the note for $750,000 due November 15, 1999 by $750,000 cash
in exchange for the return of 66,250 shares or one half of the common stock
originally used to secure the note. The cash collateral is recorded as
short-term restricted cash at December 31, 1998.
In March 1996, the Company received from Endogen, Inc. a convertible
subordinated note in the principal amount of $2,003,000 in connection with the
sale of the research products and operations of TCD to Endogen. Pursuant to the
terms of the note, on February 10, 1997 the Company converted the $1,802,700
outstanding principal balance of the note into shares of common stock of Endogen
which the Company subsequently sold. The realized gain on the stock sale was not
significant.
During 1994, the Company entered into an agreement providing the Company with
the right to lease up to $2,000,000 of equipment for up to a five-year term. The
lease arrangement contains certain restrictive covenants, determined at the end
of each fiscal quarter which, for the quarter ended September 30, 1995 included
a minimum cash, cash equivalents and short-term investments balance of
$10,000,000. At September 30, 1995 the Company's cash, cash equivalents and
short-term investment balance was below $10,000,000. As a result, in accordance
with the lease agreement, the Company pledged as collateral cash equal to the
amount outstanding on the lease which is to remain in a certificate of deposit
until the end of the lease, or as otherwise agreed by the lessor and the
Company. At December 31, 1998, the Company had $365,000 pledged as collateral
recorded as long-term restricted cash. In March 1996, the Company repaid
approximately $980,000 of the outstanding obligation under the lease in
conjunction with the sale of the research products and operations of its
subsidiary.
The Company believes that cash inflows from existing SBIR grants and
collaborations, interest income on invested funds and its current cash, cash
equivalents and marketable securities, net of restricted amounts, will be
sufficient to meet estimated working capital requirements and fund operations
beyond December 31, 1999 and into the first half of 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.
During 1999, the Company expects to take steps to raise additional capital
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.
The statements in the following section include the "Year 2000 Readiness
Disclosure" within the meaning of the Year 2000 Information and Readiness
Disclosure Act.
-23-
<PAGE>
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 effects 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 party
anticipated 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.
The Company does not have a contingency plan in the event Year 2000 compliance
cannot be achieved in a timely manner. A contingency plan will be developed upon
completion of the Company's Year 2000 compliance assessment.
-24-
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Page
<S> <C>
Index to Consolidated Financial Statements and Supplementary Schedules 25
Report of Independent Accountants 26
Consolidated Balance Sheet at December 31, 1998 and 27
December 31, 1997
Consolidated Statement of Operations for the Years Ended December 31, 28
1998, December 31, 1997 and December 31, 1996
Consolidated Statement of Stockholders' Equity for the Years Ended 29
December 31, 1998, December 31, 1997 and December 31, 1996
Consolidated Statement of Cash Flows for the Years Ended 30
December 31, 1998, December 31, 1997, and December 31, 1996
Notes to Consolidated Financial Statements 31
</TABLE>
-25-
<PAGE>
Report of Independent Accountants
To The Board of Directors and Shareholders of
AVANT Immunotherapeutics, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and retained earnings and of cash flows
present fairly, in all material respects, the financial position of AVANT
Immunotherapeutics, Inc. and its subsidiaries at December 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 1, 1999
-26-
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
==============================================================================================
ASSETS
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 8,937,200 $ 6,436,300
Marketable Securities 4,903,100 --
Current Portion Restricted Cash 750,000 750,000
Current Portion Lease Receivable 395,700 --
Prepaid and Other Current Assets, Net 629,700 203,300
- ----------------------------------------------------------------------------------------------
Total Current Assets 15,615,700 7,389,600
Property and Equipment, Net 1,111,400 364,500
Restricted Cash 365,000 525,000
Long-Term Lease Receivable 827,300 --
Other Assets 4,730,700 1,547,500
- ----------------------------------------------------------------------------------------------
Total Assets $ 22,650,100 $ 9,826,600
==============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 363,700 $ 201,200
Accrued Expenses 1,184,700 1,059,900
Deferred Revenue 750,000 750,000
Short-Term Note Payable 750,000 750,000
Current Portion Lease Payable 269,200 --
- ----------------------------------------------------------------------------------------------
Total Current Liabilities 3,317,600 2,761,100
- ----------------------------------------------------------------------------------------------
Long-Term Note Payable -- 750,000
Long-Term Lease Payable 562,900 --
- ----------------------------------------------------------------------------------------------
Commitments and Contingent Liabilities (Notes 3 and 13)
Stockholders' Equity:
Common Stock, $.001 Par Value 75,000,000 Shares Authorized;
42,512,400 Issued and 42,508,600 Outstanding at
December 31, 1998;
26,487,400 Issued and 26,477,700 Outstanding at
December 31, 1997 42,500 26,500
Additional Paid-In Capital 140,777,200 76,561,400
Less: 3,800 and 9,700 Common Treasury Shares at Cost at
December 31, 1998 and 1997, respectively (13,800) (35,800)
Accumulated Deficit (122,036,300) (70,236,600)
- ----------------------------------------------------------------------------------------------
Total Stockholders' Equity 18,769,600 6,315,500
- ----------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 22,650,100 $ 9,826,600
==============================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-27-
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1998 1997 1996
==============================================================================================================
<S> <C> <C> <C>
OPERATING REVENUE:
Product Development and
Licensing Agreements $ 2,094,500 $ 1,147,600 $ 591,200
Product Sales 55,900 44,500 523,300
- --------------------------------------------------------------------------------------------------------------
Total Operating Revenue 2,150,400 1,192,100 1,114,500
- --------------------------------------------------------------------------------------------------------------
OPERATING EXPENSE:
Cost of Product Sales 22,300 21,000 358,700
Research and Development 5,703,100 5,256,900 6,036,500
Charge for Purchased In-Process Research & Development 44,630,000 -- --
General and Administrative 3,808,100 3,472,900 6,472,600
Amortization of Goodwill 546,400 -- --
- --------------------------------------------------------------------------------------------------------------
Total Operating Expense 54,709,900 8,750,800 12,867,800
- --------------------------------------------------------------------------------------------------------------
Operating Loss (52,559,500) (7,558,700) (11,753,300)
Non-Operating Income (Expense), Net 759,800 (5,549,300) 963,200
- --------------------------------------------------------------------------------------------------------------
Net Loss $(51,799,700) $(13,108,000) $(10,790,100)
==============================================================================================================
Basic and Diluted Net Loss Per Common Share $ (1.56) $ (0.52) $ (0.50)
==============================================================================================================
Weighted Average Common
Shares Outstanding 33,177,200 25,139,900 21,693,400
==============================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-28-
<PAGE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Common Stock Additional Treasury Total
-------------------- Paid-In Stock Accumulated Stockholders'
Shares Par Value Capital Cost Deficit Equity
===============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1995 19,904,700 $19,900 $ 62,399,200 $(80,500) $ (46,338,500) $ 16,000,100
Issuance at $.60 to $3.56
per Share upon Exercise
of Stock Options 60,700 100 161,600 -- -- 161,700
Employee Stock Purchase
Plan Issuance at
$2.71 per Share -- -- (3,000) 11,500 -- 8,500
Net Proceeds from Stock Issuance 5,000,000 5,000 10,063,700 -- -- 10,068,700
Compensation Expense Associated
with Stock Options -- -- 170,300 -- -- 170,300
Net Loss for the Year
Ended December 31, 1996 -- -- -- -- (10,790,100) (10,790,100)
- -------------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1996 24,965,400 $25,000 $ 72,791,800 $(69,000) $ (57,128,600) $ 15,619,200
Issuance at $1.81 to $2.13
per Share upon Exercise
of Stock Options 12,000 -- 22,400 -- -- 22,400
Employee Stock Purchase
Plan Issuance at
$1.38 and $1.39 per Share -- -- (20,700) 33,200 -- 12,500
Issuance at $2.50 per Share for
Settlement of Litigation 1,500,000 1,500 3,748,500 -- -- 3,750,000
Compensation Expense Associated
with Issuance at $1.94
per Share 10,000 -- 19,400 -- -- 19,400
Net Loss for the Year
Ended December 31, 1997 -- -- -- -- (13,108,000) (13,108,000)
- -------------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1997 26,487,400 $26,500 $ 76,561,400 $(35,800) $ (70,236,600) $ 6,315,500
Issuance at $0.60 to $1.81
per Share upon Exercise
of Stock Options 11,400 -- 15,300 -- -- 15,300
Employee Stock Purchase
Plan Issuance at
$1.65 and $1.94 per Share -- -- (10,700) 22,000 -- 11,300
Returned Shares from Settlement
of Litigation at $2.50 per Share (66,300) -- (165,600) -- -- (165,600)
Net Proceeds from Stock Issuance 2,043,500 2,000 3,697,800 -- -- 3,699,800
Share Issued for
Acquisition of Virus Research
Institute, Inc. 14,036,400 14,000 60,679,000 -- -- 60,693,000
Net Loss for the Year
Ended December 31, 1998 -- -- -- -- (51,799,700) (51,799,700)
- -------------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1998 42,512,400 $42,500 $ 140,777,200 $(13,800) $(122,036,300) $ 18,769,600
===============================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-29-
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
December 31, December 31, December 31,
Increase in Cash and Cash Equivalents 1998 1997 1996
=======================================================================================================
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Loss $(51,799,700) $(13,108,000) $(10,790,100)
Adjustments to Reconcile Net Loss to Cash
Used by Operating Activities:
Depreciation and Amortization 989,800 353,800 464,800
Write-off of Capitalized Patent Costs 337,000 51,100 1,751,600
Decrease in Collaborator Advance -- -- (181,500)
Non-Cash Portion of Litigation Settlement (165,600) 5,250,000 --
Compensation Expense Associated with
Stock Issuance -- 19,400 --
Compensation Expense Associated with
Stock Options -- -- 170,300
Gain on Sale of Research Products and
Operations of T Cell Diagnostics, Inc. -- -- (283,000)
Gain on Sale of Equipment (22,300) -- --
Charge for Purchased In-Process
Research and Development 44,630,000 -- --
Changes in Assets and Liabilities,
Net of Acquisition:
Increase in Current Portion
Restricted Cash -- (750,000) --
Prepaid and Other Current Assets (1,529,900) 81,700 109,400
Accounts Payable and Accrued Expenses (1,291,300) (343,400) (796,200)
Deferred Revenue -- 750,000 (121,100)
- -------------------------------------------------------------------------------------------------------
Net Cash Used by Operating Activities (8,852,000) (7,695,400) (9,675,800)
- -------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Acquisition of Property and Equipment (294,800) (76,900) (135,200)
Proceeds from the Sale of Equipment 25,200 -- --
Redemption of Marketable Securities 4,463,000 -- --
Increase in Patents and Licenses (426,000) (381,200) (507,400)
Decrease in Long-Term Restricted Cash, Net 160,000 160,000 165,000
Cash Received from Acquisition
of Virus Institute, Inc. 4,391,500 -- --
Payment of Note Payable (750,000) -- --
Payment Received on Convertible Note Receivable -- 1,802,700 200,300
Other 57,600 400 30,800
- -------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Investing Activities 7,626,500 1,505,000 (246,500)
- -------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net Proceeds from Stock Issuance 3,711,100 12,500 10,077,200
Proceeds from Exercise of Stock Options 15,300 22,400 161,700
- -------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 3,726,400 34,900 10,238,900
- -------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents 2,500,900 (6,155,500) 316,600
Cash and Cash Equivalents at Beginning of Period 6,436,300 12,591,800 12,275,200
- -------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 8,937,200 $ 6,436,300 $ 12,591,800
=======================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-30-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 and 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Nature of Business
AVANT Immunotherapeutics, Inc. (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
develops and commercializes products on a proprietary basis and in collaboration
with established pharmaceutical partners, including Novartis Pharma AG, Astra
AB, Yamanouchi Pharmaceutical Co., Ltd., Pasteur Merieux Connaught, and
SmithKline Beecham.
In March 1998, the Company completed a private placement of 2,043,500 shares of
common stock to institutional investors at a price of $1.90 per share. Net
proceeds from the common stock issuance totaled approximately $3,699 800. On
August 21, 1998, the Company acquired all of the outstanding capital stock of
Virus Research Institute, Inc. ("VRI"), a company engaged in the discovery and
development of (i) systems for the delivery of vaccines and immunotherapeutics
and (ii) novel vaccines (see Note 15).
The Company's cash, cash equivalents and marketable securities at December 31,
1998 was $13,840,300. The Company's working capital at December 31, 1998 was
$12,298,100. The Company incurred a loss of $51,799,700 for the year ended
December 31, 1998, which includes a charge of $44,630,000 for purchased
in-process research and development related to the acquisition of VRI (see Note
15). The Company believes that cash inflows from existing grants and
collaborations, interest income on invested funds and its current cash, cash
equivalents, and marketable securities will be sufficient to meet estimated
working capital requirements and fund operations beyond December 31, 1999. 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. During 1999, the Company expects to take steps to
raise additional capital 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. There can be no assurances that such efforts will be successful.
In March 1996, the Company sold substantially all of the assets of its
wholly-owned subsidiary, T Cell Diagnostics, Inc. ("TCD") while retaining all
rights to the TRAx(R) product franchise. The Company continued to commercialize
the TRAx(R) line of diagnostic products which are used in the detection and
monitoring of immune-related disorders through 1998. The Company is currently
focusing its efforts on establishing a partnership for the TRAx(R) technology.
(B) Basis of Presentation
The consolidated financial statements include the accounts of AVANT
Immunotherapeutics, Inc. and its wholly owned subsidiaries, Virus Research
Institute, Inc., from the date of purchase, and T Cell Diagnostics, Inc. All
intercompany transactions have been eliminated.
(C) Cash Equivalents and Investments
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents. Short-term investments are those
with maturities in excess of three months but less than one year. All cash
equivalents and short-term investments have been classified as available for
sale and are reported at fair market value with unrealized gains and losses
included in stockholders' equity.
In addition to cash equivalents, the Company has investments in corporate and
municipal debt securities that are classified in the balance sheet as
held-to-maturity in accordance with the provisions of Statement of Financial
Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain Instruments
in Debt and Equity Securities." Held-to-maturity investments are securities the
Company has the positive intent and ability to hold to maturity. These
securities are accounted for at amortized cost, which approximates fair value.
The Company invests its nonoperating cash in debt instruments of financial
institutions, government entities and corporations, and mutual funds. The
Company has established guidelines relative to credit ratings, diversification
and maturities that maintain safety and liquidity.
-31-
<PAGE>
(D) Fair Value of Financial Instruments
The Company enters into various types of financial instruments in the normal
course of business. Fair values for cash, cash equivalents, short-term
investments, accounts and notes receivable, accounts and notes payable and
accrued expenses approximate carrying value at December 31, 1998 and 1997, due
to the nature and the relatively short maturity of these instruments.
(E) Revenue Recognition
The Company has entered into various license and development agreements with
pharmaceutical and biotechnology companies. Revenue derived from such agreements
is recognized over the specified development period as research and development
or discovery activities are performed. Cash received in advance of activities
being performed is recorded as deferred revenue. Signing fees, received by the
Company for entering into license and development agreements are recognized when
received if the fees are nonrefundable and the Company has no obligations to
perform under the agreement. Revenues from product sales are recorded when the
product is shipped.
(F) Research and Development Costs
Research and development costs are expensed as incurred.
(G) Inventories
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method.
(H) Property and Equipment
Property and equipment is stated at cost and depreciated over the estimated
useful lives of the related assets using the straight-line method. Laboratory
equipment and office furniture and equipment are depreciated over a five year
period and computer equipment is depreciated over a three year period. Leasehold
improvements are amortized over the shorter of the estimated useful life or the
noncancelable term of the related lease.
(I) Licenses, Patents and Trademarks
Included in other assets are the costs of purchased licenses and certain costs
associated with patents and trademarks which are capitalized and amortized over
the shorter of the estimated useful lives or ten years using the straight-line
method. The Company periodically evaluates the recoverability of these assets in
accordance with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of " ("SFAS 121").
(J) Loss Per Share
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share", which
changed the method of calculating earnings per share. SFAS 128, which the
Company adopted in the fourth quarter of 1997, requires the presentation of
"basic" earnings per share and "diluted" earnings per share. As a result of the
Company's net loss, both basic and diluted earnings per share are computed by
dividing the net loss available to common shareholders by the weighted average
number of shares of common stock outstanding.
(K) Stock Compensation
The Company's employee stock compensation plans are accounted for in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." The Company adopted the disclosure requirements of Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation" (see Note 7).
-32-
<PAGE>
(L) Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Actual results
could differ from those estimates.
2. SHORT-TERM INVESTMENTS AND RESTRICTED CASH
The Company invests in high quality, short-term investments which are considered
highly liquid and are available to support current operations. The Company also
invests in high quality, debt securities which are classified as
held-to-maturity. At December 31, 1998 and 1997, the Company's investments that
met the definition of cash equivalents were recorded at cost, which approximated
fair value.
At December 31, 1998 and 1997, the Company had pledged as collateral $750,000
which is recorded as current portion restricted cash and $365,000 and $525,000,
respectively, which is recorded as long-term restricted cash. Pursuant to the
terms of the settlement agreement between the Company and its former landlord,
the Company pledged as collateral $750,000 at December 31, 1998 and 1997 (see
Note 13). The Company also has $365,000 and $525,000 pledged as collateral at
December 31, 1998 and 1997, respectively, in accordance with the terms of the
operating lease (see Note 3).
3. PROPERTY, EQUIPMENT AND LEASES
Property and equipment includes the following:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
===========================
<S> <C> <C>
Laboratory Equipment $ 2,480,000 $ 1,834,200
Office Furniture and Equipment 1,148,200 1,013,700
Leasehold Improvements 393,600 255,000
---------------------------
Property and Equipment, Total 4,021,800 3,102,900
Less Accumulate Depreciation and Amortization (2,910,400) (2,738,400)
---------------------------
$ 1,111,400 $ 364,500
===========================
</TABLE>
Depreciation expense related to equipment and leasehold improvements was
approximately $267,600, $224,000 and $290,800 for the years ended December 31,
1998, 1997 and 1996, respectively.
In May 1996, the Company entered into a six-year lease for laboratory and office
space in Needham, Massachusetts. The lease replaced two-year lease and sublease
agreements entered into in March 1995 for the same location and increased the
amount of office and laboratory space available. In March 1996, the Company sold
certain property and equipment to Endogen as part of the sale of the research
products and operations of TCD. In addition, certain lease obligations of the
Company were assigned to Endogen in conjunction with the sale (see Note 14).
In August 1994, the Company entered into a lease agreement providing the Company
with the right to lease up to $2,000,000 of equipment for up to a five-year
term. The lease agreement contains certain restrictive covenants determined at
the end of each fiscal quarter which, for the quarter ended September 30, 1995,
included a minimum cash, cash equivalents and short-term investments balance of
$10,000,000. At September 30, 1995 the Company's cash and cash equivalents
balance was below $10,000,000. As a result, in accordance with the lease
agreement, the Company pledged cash as collateral to the lessor equal to the
amount outstanding on the lease which is to remain in a certificate of deposit
until the end of the lease or as otherwise agreed by the lessor and the Company.
The Company has recorded $365,000 and $525,000 as long-term restricted cash at
December 31, 1998 and 1997, respectively.
-33-
<PAGE>
Obligations for base rent, net of sublease income, under these and other
noncancelable operating leases as of December 31, 1998 are approximately as
follows:
<TABLE>
<S> <C>
Year ending December 31, 1999 $ 760,000
2000 689,600
2001 668,200
2002 252,100
2003 --
Thereafter --
----------
Total minimum lease payments $2,369,900
==========
</TABLE>
The Company's total rent expense was approximately $909,500, $851,400 and
$903,100 for the years ended December 31, 1998, 1997 and 1996, respectively.
4. OTHER ASSETS
Other assets include the following:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
============================
<S> <C> <C>
Capitalized Patent Costs $ 1,890,300 $ 1,900,700
Accumulated Amortization (595,500) (519,100)
----------------------------
Capitalized Patent Costs, Net 1,294,800 1,381,600
Goodwill and Other Intangible
Assets, Net 3,289,300 --
Other Non Current Assets 146,600 165,900
----------------------------
$ 4,730,700 $ 1,547,500
============================
</TABLE>
In December 1998, in accordance with SFAS 121, the Company evaluated and
subsequently wrote off approximately $294,500 of capitalized patent costs
relating to its TRAx(R) test kit program which is included in operating expense
or general and administrative expense for the year ended December 31, 1998.
During the second quarter of 1996, as part of the Company's realignment of
certain of its operations, the Company suspended internal funding of the
research and development of its T cell antigen receptor program pending
completion of negotiations to transfer certain of its patent and license rights
related to such technology to Astra AB. In June 1996, in accordance with SFAS
121, the Company evaluated and subsequently wrote off approximately $1,751,600
of capitalized patent costs relating to its T cell antigen receptor program
which is included in operating expense as general and administrative expense for
the year ended December 31, 1996.
Amortization expense for the years ended December 31, 1998, 1997 and 1996
relating to the capitalized costs of purchased licenses and patents and
trademarks was approximately $175,800, $129,800 and $174,000, respectively.
Goodwill amortization expense for the year ended December 31, 1998 was
approximately $546,400.
-34-
<PAGE>
5. ACCRUED EXPENSES
Accrued expenses include the following:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
==========================
<S> <C> <C>
Accrued License Fees $ 60,000 $ 60,000
Accrued Payroll and Employee Benefits 258,700 222,600
Accrued Clinical Trials 195,500 448,100
Accrued Legal 263,800 20,600
Other Accrued Expenses 406,700 308,600
--------------------------
$1,184,700 $1,059,900
==========================
</TABLE>
6. INCOME TAXES
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
===========================================
<S> <C> <C> <C>
Income tax benefit:
Federal $ 2,444,900 $ 4,539,100 $ 3,696,100
State 198,900 529,000 388,000
-------------------------------------------
2,643,800 5,068,100 4,084,100
Deferred tax assets valuation allowance (2,643,800) (5,068,100) (4,084,100)
-------------------------------------------
$ -- $ -- $ --
===========================================
</TABLE>
Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
=============================
<S> <C> <C>
Net Operating Loss Carryforwards $ 42,591,900 $ 25,775,200
Tax Credit Carryforwards 4,139,300 3,143,800
Other 1,626,500 1,521,500
-----------------------------
Gross Deferred Tax Assets 48,357,700 30,440,500
Deferred Tax Assets Valuation Allowance (48,357,700) (30,440,500)
-----------------------------
$ -- $ --
=============================
</TABLE>
-35-
<PAGE>
Reconciliation between the amount of reported income tax expenses and the amount
computed using the U.S. Statutory rate of 35% follows:
<TABLE>
<CAPTION>
1998 1997 1996
===========================================
<S> <C> <C> <C>
Loss at Statutory Rates $(2,313,200) $(4,587,800) $(3,776,500)
Research and Development Credits (298,100) (172,100) (189,400)
State tax benefit, net of federal tax liabilities (269,700) (591,500) (337,400)
Other 237,200 283,300 219,200
Benefit of losses and credits not recognized,
increase in valuation allowance 2,643,800 5,068,100 4,084,100
-------------------------------------------
$ -- $ -- $ --
===========================================
</TABLE>
The Company has provided a full valuation allowance for deferred tax assets as
management has concluded that it is more likely than not that the Company will
not recognize any benefits from its net deferred tax asset. The timing and
amount of future earnings will depend on numerous factors, including the
Company's future profitability. The Company will assess the need for a valuation
allowance as of each balance sheet date based on all available evidence.
At December 31, 1998, the Company has U.S. net operating loss carryforwards of
$73,405,802, U.S. capital loss carryforwards of $1,852,300, and U.S. tax credits
of $2,848,400 which expire at various dates from 1999 through 2010. Under the
Tax Reform Act of 1986, certain substantial changes in the Company's ownership
could result in an annual limitation on the amount of net operating loss
carryforwards, research and development tax credits, and capital loss
carryforwards which could be utilized.
7. STOCKHOLDERS' EQUITY
(A) Public and Private Stock Offerings
On March 24, 1998, the Company completed a private placement of 2,043,500 newly
issued shares of common stock. Net proceeds were approximately $3,699,800 after
deducting all associated expenses.
On August 26, 1996, the Company completed a public offering of 5,000,000 newly
issued shares of common stock. Net proceeds were approximately $10,068,700 after
deducting all associated expenses.
(B) Preferred Stock
At December 31, 1998 and 1997, the Company had authorized preferred stock
comprised of 1,163,102 shares of convertible Class B and 3,000,000 shares of
convertible Class C of which 350,000 shares has been designated as Class C-1
Junior Participating Cumulative, the terms of which are to be determined by the
Company's Board of Directors. There was no preferred stock outstanding at
December 31, 1998 and 1997.
(C) Warrants
The Company has issued warrants to purchase common stock in connection with the
acquisition of VRI on August 21, 1998. The warrants are exercisable for $6.00
per share and expire August 22, 2003. In connection with the acquisition of VRI
the Company also assumed the obligations of VRI with respect to each outstanding
warrant to subscribe for and purchase VRI common stock (a "VRI Warrant"). Each
VRI Warrant assumed by the Company, which will continue to have, and be subject
to, the terms and conditions of the applicable warrant agreements and warrant
certificates, has been adjusted for the ratio of the Company's common stock
exchanged for VRI common stock in the acquisition.
-36-
<PAGE>
Warrants outstanding at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Exercise
Number of Price
Security Shares Per Share Expiration Date
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common stock 35,657 $ .62 February 9, 2004
Common stock 76,842 1.26 December 14, 2005
Common stock 17,050 7.10 April 12, 2001
Common stock 1,811,843 6.00 August 22, 2003
</TABLE>
(D) Stock Compensation and Employee Stock Purchase Plans
Stock Compensation
The Company's 1991 Stock Compensation Plan (the "1991 Plan"), which is an
amendment and restatement of the Company's 1985 Incentive Option Plan, permits
the granting of incentive stock options (intended to qualify as such under
Section 422A of the Internal Revenue Code of 1986, as amended), non-qualified
stock options, stock appreciation rights, performance share units, restricted
stock and for other awards of restricted stock in lieu of cash bonuses to
employees, consultants and outside directors.
The Plan allows for a maximum of 3,700,000 shares of common stock to be issued
prior to December 1, 2001. The Board of Directors determines the term of each
option, option price, number of shares for which each option is granted and the
rate at which each option vests. The term of each option cannot exceed ten years
(five years for options granted to holders of more than 10% of the voting stock
of the Company). The exercise price of stock options shall not be less than the
fair market value of the common stock at the date of grant (110% of fair market
value for options granted to holders of more than 10% of the voting stock of the
Company).
In connection with the acquisition of VRI the Company assumed the obligations of
VRI under VRI's 1992 Equity Incentive Plan (the "VRI Plan") and each outstanding
option to purchase VRI common stock (a "VRI Stock Option") granted under the VRI
Plan. Each VRI Stock Option assumed by the company is deemed to constitute an
option to acquire, on the same terms and conditions as were applicable under
such VRI Stock Option, shares of the Company's common stock which has been
adjusted for the ratio of the Company's common stock exchanged for VRI's common
stock in the acquisition. As of the date the acquisition was completed the
Company assumed 1,532,055 stock options to acquire the Company's common stock at
a weighted average exercise price of $2.34.
Employee Stock Purchase Plan
The 1994 Employee Stock Purchase Plan (the "1994 Plan") was adopted on June 30,
1994. All full time employees of the Company are eligible to participate in the
1994 Plan. A total of 150,000 shares are reserved for issuance under this plan.
An employee may participate voluntarily in any offering for up to 15% of their
compensation to purchase up to 500 shares per year 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 lower of its fair market value at the
beginning of the offering period or the applicable exercise date.
-37-
<PAGE>
A summary of stock option activity for the years ended December 31, 1998, 1997
and 1996 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Price Price Price
Shares per Share Shares per Share Shares per Share
============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1, 1,773,242 $ 3.20 2,303,196 $ 5.94 2,516,313 $ 5.82
Granted 638,250 1.99 492,750 1.77 472,600 2.82
Assumed in acquisition 1,532,055 2.34 -- -- -- --
Exercised (11,355) 1.34 (12,000) 1.86 (60,710) 2.66
Canceled (577,484) 2.82 (1,010,704) 8.78 (625,007) 3.39
- ------------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 3,354,708 $ 2.65 1,773,242 $ 3.20 2,303,196 $ 5.94
========================================================================================================================
At December 31,
Options exercisable 2,542,950 1,039,437 1,740,310
Available for grant 1,095,206 1,296,716 678,762
Weighted average
fair value of options
granted during year $ 1.10 $ 0.92 $ 1.26
</TABLE>
The following table summarizes information about the stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding
------------------------------------------------------------------------------------------
Number Weighted Average Weighted Average
Outstanding at Remaining Exercise Price
Range of Exercise Prices December 31, 1998 Contractual Life per Share
========================================================================================================================
<S> <C> <C> <C>
$ 0.10 - 0.64 698,631 5.46 $ 0.63
0.95 - 1.97 797,515 8.97 1.78
2.03 - 2.75 575,190 7.99 2.55
2.93 - 4.04 758,091 6.77 3.57
4.06 - 7.81 525,281 5.50 5.45
- ------------------------------------------------------------------------------------------------------------------------
$ 0.10 - 7.81 3,354,708
========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Options Exercisable
---------------------------------------------------------
Number Weighted Average
Exercisable at Exercise Price
Range of Exercise Prices December 31, 1998 per Share
======================================================================================================
<S> <C> <C>
$ 0.10 - 0.64 698,631 $ 0.63
0.95 - 1.97 194,642 1.76
2.03 - 2.75 414,942 2.56
2.93 - 4.04 710,204 3.59
4.06 - 7.81 524,531 5.45
- ------------------------------------------------------------------------------------------------------
$ 0.10 - 7.81 2,542,950
======================================================================================================
</TABLE>
-38-
<PAGE>
Fair Value Disclosures
Had compensation costs for the Company's stock compensation plans been
determined based on the fair value at the grant dates, consistent with SFAS 123,
the Company's net loss, and net loss per share for the years ending December 31,
1998, 1997 and 1996 would be as follows:
<TABLE>
<CAPTION>
1998 1997 1996
================================================================================
<S> <C> <C> <C>
Net Loss:
As reported $ 51,799,700 $13,108,000 $10,790,100
Pro forma $ 52,150,800 $13,514,100 $11,269,900
Basic and Diluted Net Loss
Per Share:
As reported $ 1.56 $ 0.52 $ 0.50
Pro forma 1.57 0.54 0.52
</TABLE>
The fair value of the option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
================================================================================
<S> <C> <C> <C>
Expected dividend yield 0% 0% 0%
Expected stock price volatility 63% 57% 51%
Risk-free interest rate 4.5%-5.6% 5.5%-6.4% 4.9%-6.7%
Expected option term 2.50 Years 2.7 Years 2.6 Years
</TABLE>
Because the determination of the fair value of all options granted includes an
expected volatility factor in addition to the factors detailed in the table
above, and because additional option grants are expected to be made each year,
the above pro forma disclosures are not representative of pro forma effects of
reported net income for future years.
(E) Shareholder Rights Plan
On November 10, 1994, the Company's Board of Directors declared a dividend of
one preferred share purchase right for each share of common stock outstanding.
Each right entitles the holder to purchase from the Company one-one thousandth
of a share of Series C-1 Junior Participating Cumulative Preferred Stock (a
"Unit"), par value $.01 at a price of $16.00 per one-one thousandth of a share,
subject to certain adjustments. The Units are exercisable only if a person or a
group acquires 15% or more of the outstanding common stock of the Company or
commences a tender offer which would result in the ownership of 15% or more of
the Company's outstanding common stock. Once a Unit becomes exercisable, the
plan allows the Company's shareholders to purchase common stock at a substantial
discount. Unless earlier redeemed, the Units expire on November 10, 2004. The
Company is entitled to redeem the Units at $.01 per Unit subject to adjustment
for any stock split, stock dividend or similar transaction.
As of December 31, 1998 and 1997, the Company has authorized the issuance of
350,000 shares of Series C-1 Junior Participating Cumulative Preferred Stock for
use in connection with the shareholder rights plan.
(F) Severance Agreement Charge
On May 29, 1996, the Company announced changes in its senior management. As part
of the reorganization, the Company recorded a $425,300 charge to earnings
resulting from a severance agreement with the Company's former President and
Chief Executive Officer. The charge included a $255,000 severance payment and a
non-cash charge of approximately $170,300 relating to the acceleration of
certain stock option vesting rights.
-39-
<PAGE>
(G) Acquisition of Virus Research Institute, Inc.
The Company issued 14,036,400 shares of AVANT common stock and warrants to
purchase approximately 1,811,200 shares of AVANT common stock on August 21,
1998, in exchange for all of the oustanding common stock of VRI (see Note 15).
8. RESEARCH AND LICENSING AGREEMENTS
The Company has entered into licensing agreements with several universities and
research organizations. Under the terms of these agreements, the Company has
received licenses or options to license technology, certain patents or patent
applications. The Company made required payments of nonrefundable license fees
and royalties which amounted to approximately $100,000, $65,000 and $205,000 for
the years ended December 31, 1998, 1997 and 1996, respectively.
9. PRODUCT DEVELOPMENT AND DISTRIBUTION AGREEMENTS
The Company's product development revenues were received from contracts with
different organizations. Total revenue received by the Company in connection
with these contracts for the years ended December 31, 1998, 1997 and 1996 were
approximately $2,094,500, $1,147,600 and $591,200, respectively. A summary of
these contracts follows:
(A) Novartis Pharma AG
In October 1997, the Company entered into an option agreement with Novartis
Pharma AG ("Novartis"), a worldwide pharmaceutical company headquartered in
Basel, Switzerland, relating to the development of TP10 for use in
xenotransplantation (animal organs into humans) and allotransplantation (human
to human). 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. In exchange for granting the
two-year option, the Company will receive annual option fees and supplies of
clinical grade TP10 with a combined value of up to $5 million. Should Novartis
exercise its option to license TP10 and continue development within the fields
of xenotransplantation and allotransplantation, it will provide equity to the
Company in the form of investment, licensing fees and milestone payments based
upon attainment of certain development and regulatory goals. The Company may
also receive from Novartis funding for research as well as royalty payments on
eventual products sales.
Under the terms of the agreement Novartis paid the Company a non-refundable
option fee related to the first option period which commenced in October 1997.
In November 1998, the Company received an option fee payment from Novartis which
initiates year two of the option agreement. During the option period, Novartis
is granted sole access to the technology for use in xenotransplantation and
allotransplantation. The Company is recording the option fee as revenue over the
one year option period.
(B) Astra AB
In January 1992, the Company entered into a product development and distribution
agreement with Astra AB ("Astra"), a worldwide pharmaceutical company
headquartered in Sodertalje, Sweden, for the joint development and marketing of
therapeutic products using the Company's proprietary T cell antigen receptor
("TCAR") technology. The products developed exclusively and jointly with Astra
were monoclonal antibodies and protein-derived immunomodulators that may have
efficacy in treating autoimmune diseases such as multiple sclerosis, Crohn's
disease, and rheumatoid arthritis.
In June 1996, the Company suspended further internal funding of the research and
development of the TCAR program. In December 1996, the Company further amended
its agreement with Astra to transfer certain of its rights to the TCAR
technology to Astra in addition to sole responsibility for further development
and commercialization of the TCAR technology. Under the amended agreement, the
Company received an initial signing fee of $100,000 and could receive future
milestone and royalty payments upon Astra's successful development and
commercialization of the TCAR technology.
The Company recognized revenue from milestone payments in 1997 of $650,000 and
TCAR funding revenue of $453,400 in 1996 which included $181,600 from the
reduction of the collaborator advance liability. The funds were advanced from
Astra for the expansion of additional space dedicated to joint TCAR product
research.
-40-
<PAGE>
(C) CytoTherapeutics
In April 1996, the Company licensed portions of its patent and technology rights
regarding Complement Receptor 1 ("CR1") to CytoTherapeutics, Inc. for use in
CytoTherapeutics' cell-based products for the delivery of therapeutic substances
to the central nervous system. Under the agreement, the Company granted
non-exclusive rights for the use of CR1 in any encapsulated-cell product. The
license does not include rights to use CR1 for therapeutic effects. In 1996, the
Company received a non-refundable $100,000 signing fee and may receive
additional milestone payments and royalty payments from commercialized products
resulting from the license.
(D) Pasteur Merieux Connaught
In December 1994, AVANT entered into a license agreement with Pasteur Merieux
Connaught ("PMC") which granted PMC the exclusive right to make, use and sell
Adjumer(TM)-formulated vaccines for prevention of influenza, Lyme disease and
diseases caused by meningococcus and the co-exclusive right (exclusive, except
for the right of AVANT or one other person licensed by AVANT) to make, use and
sell Adjumer(TM)-formulated vaccines directed against five other pathogens,
including pneumococcus and RSV. VRI has retained rights to make, use, sell and
license Adjumer(TM)-formulated vaccines against the subject infections in most
of the Far East, including China and Japan, subject to certain geographical
extension rights available to PMC. In December 1998, the Company received a
milestone payment of $600,000 from PMC upon commencement of the first Phase I
clinical trial of the Adjumer(TM)-formulated vaccine for RSV.
10. NON-OPERATING INCOME (EXPENSE)
Non-operating income (expense) includes the following:
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
===========================================
<S> <C> <C> <C>
Interest and Dividend Income $ 571,900 $ 577,300 $ 680,200
Gain on Sale of Portion of
Diagnostic Business -- -- 283,000
Gain on Sale of Equipment 22,300 -- --
Legal Settlement (see Note 13) 165,600 (6,108,800) --
Gain on Sale of Investments -- (17,800) --
-------------------------------------------
$ 759,800 $(5,549,300) $ 963,200
===========================================
</TABLE>
11. DEFERRED SAVINGS PLAN
Under section 401(k) of the Internal Revenue Code of 1986, as amended, the Board
of Directors adopted, effective May 1990, a tax-qualified deferred compensation
plan for employees of the Company. Participants may make tax deferred
contributions up to 15%, or $10,000, of their total salary in 1998. The Company
may, at its discretion, make contributions to the plan each year matching up to
1% of the participant's total annual salary. Company contributions amounted to
$20,100, $20,600 and $33,000 for the years ended December 31, 1998, 1997 and
1996, respectively.
12. FOREIGN SALES
Foreign Sales:
- --------------
Product sales were generated geographically as follows:
-41-
<PAGE>
<TABLE>
<CAPTION>
Net Product Sales for the
Twelve Months Ended Europe USA Asia Other Total
<S> <C> <C> <C> <C> <C>
December 31, 1998 $ 5,000 $ 31,000 $ -- $ 20,000 $ 56,000
December 31, 1997 5,000 29,000 -- 11,000 45,000
December 31, 1996 145,000 240,000 130,000 8,000 523,000
</TABLE>
13. LITIGATION
In December 1994, the Company filed a lawsuit in the Superior Court of
Massachusetts against the landlord of its former Cambridge, Massachusetts
headquarters to recover the damages incurred by the Company resulting from the
evacuation of the building due to air quality problems, which caused skin and
respiratory irritation to a significant number of employees. The landlord
defendant filed counterclaims, alleging the Company breached its lease
obligations. The court ordered a limited trial between the Company and the
landlord on certain factual issues which began on November 20, 1996. Closing
arguments for the limited trial were heard on January 13, 1997. In a separate
lawsuit, the landlord's mortgagee filed claims against the Company for payment
of the same rent alleged to be owed. A motion for summary judgment filed by the
bank was denied by the court. In August 1997, the Superior Court of
Massachusetts entered findings of fact and conclusions of law on the limited
trial of the Company's lawsuit against the landlord. In its findings, the Court
concluded that the Company had not proved, as alleged by the Company, that any
fireproofing fibers contaminated the Company's space, the Company's space was
not uninhabitable because of contamination from fireproofing fibers and the
Company was not justified in terminating its lease on the grounds that its
office and laboratories were uninhabitable. In November 1997, the Company
reached a settlement of the litigation with its former landlord and the
landlord's mortgagee. The Company agreed to pay $858,800 in cash on November 17,
1997 and issue a total of 1,500,000 shares of its common stock. In addition, the
Company signed a note for $750,000 payable on November 16, 1998 secured by
$750,000 cash collateral and a note for $750,000 due November 15, 1999, secured
by 132,500 shares of common stock. The total settlement, valued at $6,108,800,
is comprised of the cash and notes totaling $2,358,800 and common stock valued
at $3,750,000 as of October 31, 1997 and is included in non-operating expense
for the year ended December 31, 1997. The common stock issued is subject to
restrictions on transfer per the settlement agreement. The settlement agreement
also provides for certain registration rights for the shares of common stock to
become effective no later than September 30, 1998. Upon such registration,
however, the settlement agreement limits the number of shares that may be sold
over a given period of time.
In May 1998, the Company used cash as collateral for a $750,000 note due
November 15, 1999 issued in connection with a settlement agreement with its
former landlord and the landlord's mortgagee. In accordance with the settlement
agreement, 66,250 shares of the Company's common stock issued to secure the note
were returned to the Company. The common stock was valued at $165,600 as of
October 31, 1997 and its return is included in non-operating income in 1998.
14. SALE OF PORTION OF DIAGNOSTIC BUSINESS
On March 5, 1996 the Company sold to Endogen, Inc. the research products and
operations of TCD for a purchase price of approximately $2,880,000, while
retaining the TRAx(R) diagnostic product franchise. The consideration for this
sale to Endogen was paid in the form of a convertible subordinated note
receivable (the "Convertible Note") in the principal amount of $2,003,000 and a
combination of cash and a short-term note used to repay approximately $980,000
of obligations under the Company's operating lease. On February 10, 1997, the
Company converted the outstanding principal balance, or $1,803,000, of the
Convertible Note into shares of Endogen commons stock which it subsequently
sold. Additionally, the Company may receive a royalty on certain of Endogen's
sales of research products.
The Company is currently focusing its efforts on establishing a partnership for
the TRAx(R) technology.
-42-
<PAGE>
15. ACQUISITION OF VIRUS RESEARCH INSTITUTE, INC.
On August 21, 1998, the Company acquired all of the outstanding capital stock of
VRI, a company engaged in the discovery and development of (i) systems for the
delivery of vaccines and immunotherapeutics and (ii) novel vaccines. The Company
issued approximately 14,036,400 shares of AVANT common stock and warrants to
purchase approximately 1,811,200 shares of AVANT 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 one share of VRI common
stock. The purchase price of $63,004,700 consisted of (i) the issuance of
14,036,400 shares of AVANT common stock valued at $51,686,800 and 1,811,200
AVANT warrants valued at $4,980,700 for all outstanding VRI capital stock, (ii)
the issuance of AVANT warrants valued at $387,600 in exchange for all of the
outstanding VRI warrants, (iii) the issuance of options to purchase AVANT common
stock valued at $3,637,900 for all of the outstanding options to purchase VRI
common stock assumed by the Company, and (iv) severance and transaction costs
totaling $2,311,700.
The allocation of the purchase price was determined as follows:
<TABLE>
<S> <C>
Net tangible assets acquired $ 14,539,000
Intangible assets acquired:
Work force 470,000
Collaborative relationships 1,090,000
Goodwill 2,275,700
In-process technology 44,630,000
-------------------------------------------------
Total $ 63,004,700
=================================================
</TABLE>
The acquisition has been accounted for as a purchase, and accordingly, the
original purchase price was allocated to acquired assets and assumed liabilities
based upon their fair value at the date of acquisition. The purchase price has
been allocated to assets acquired and to in-process research and development
which has been charged as an expense in the AVANT consolidated financial
statements for year ended December 31, 1998. Intangibles arising from the
acquisition are being amortized on a straight line basis over 12 months and 60
months. The operating results of VRI from August 22, 1998 to December 31, 1998
have been included in the Company's consolidated results of operations.
The following unaudited pro forma financial summary is presented as if the
operations of the Company and VRI were combined as of January 1, 1998 and 1997,
respectively. The unaudited pro forma combined results are not necessarily
indicative of the actual results that would have occurred had the acquisition
been consummated at that date, or of the future operations of the combined
entities. Nonrecurring charges, such as the acquired in-process research and
development charge of $44,630,000, are not reflected in the following pro forma
financial summary.
<TABLE>
<CAPTION>
Year Ended
December 31, 1998 1997 1996
======================================================================================
<S> <C> <C> <C>
Operating Revenue $ 2,206,500 $ 3,697,600 $ 7,110,900
Net Loss (13,389,800) (21,311,500) (14,011,100)
Basic and diluted net loss per share (0.32) (0.54) (0.39)
</TABLE>
-43-
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information under the Sections "Proposal 1 - Election of Directors" and
"Management" in the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 6, 1999, is hereby incorporated by reference.
Item 11. EXECUTIVE COMPENSATION
The information under the Section "Management" of the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 6, 1999, is
hereby incorporated by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the Section "Beneficial Ownership of Common Stock" of the
Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held
on May 6, 1999, is hereby incorporated by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the Sections "Proposal 1 - Election of Directors" and
"Management" of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 6, 1999, is hereby incorporated by reference.
-44-
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) The following documents are filed as part of this Form 10-K:
(1) Financial Statements:
See "Index to Consolidated Financial Statements" at Item 8.
(2) Financial Statement Schedules:
Schedules are omitted since the required information is not applicable or
is not present in amounts sufficient to require submission of the schedule,
or because the information required is included in the Consolidated
Financial Statements or Notes thereto.
(3) Exhibits:
<TABLE>
<CAPTION>
No. Description Page No.
- ------------------------------------------------------------------------------------------------
<S> <C>
2.1 Agreement of Merger among the Incorporated by reference to the Company's report
Company, T Cell Acquisition Corp. and T on form 8-K filed September 22, 1993
Cell Diagnostics, Inc. dated August 20,
1993 relating to reconsolidation of the
Company's subsidiary
2.2 Asset Purchase Agreement among Incorporated by reference to the Company's report on form 8-K
Endogen, Inc., T Cell Diagnostics, Inc., filed March 20, 1996
with the Company dated March 4, 1996
2.3 Agreement and Plan of Merger, dated as Incorporated by reference to the Registration Statement on
of May 12, 1998, by and among the Form S-4 (Reg. No. 333-59215)
Company, TC Merger Corp., Virus
Research Institute, Inc.
3.1 Third Restated Certificate of Incorporation Incorporated by reference to the Company's Annual Report
of the Company on Form 10-K for the year ended April 30, 1991
3.2 Certificate of Amendment of Third Incorporated by reference to the Company's
Restated Certificate of Incorporation of Annual Report on Form 10-K for the year ended
the Company December 31, 1992
3.3 Certificate of Designation for series C-1 Incorporated by reference to the Company's Annual Report on
Junior Participating Cumulative Preferred Form 10-K for the year ended December 31, 1994
Stock
3.4 Second Certificate of Amendment of Incorporated by reference to the Registration Statement on
Third Restated Certificate of Incorporation Form S-4 (Reg. No. 333-59215)
of the Company
3.5 Amended and Restated By-Laws of the Incorporated by reference to the Company's report on Form 8-K
Company as of November 10, 1994 dated November 10, 1994
4.1 Form of Purchase Agreement dated Incorporated by reference to Exhibit 10.1 of the Company's
November 23, 1993 relating to the Registration Statement on Form S-3 (Reg. No. 33-72172)
Company's private placement of Common
Stock
4.2 Shareholder Rights Agreement dated Incorporated by reference to the Company's report on Form 8-K
November 10, 1994 between the Company dated November 10, 1994
and State Street Bank and Trust Company
as Rights Agent
4.3 Form of Stock Purchase Agreement dated Incorporated by reference to Exhibit 10.1 of the Company's
October 27, 1995 relating to the Registration Statement on Form S-3 (Reg. No. 33-64021)
Company's private placement of Common Stock
4.4 Form of Stock Purchase Agreement dated Incorporated by reference to Exhibit 10.1 of the Company's
November 3, 1995 relating to the Registration Statement on Form S-3 (Reg. No. 33-64021)
Company's private placement of Common Stock
4.5 Form of Stock Purchase Agreement dated Incorporated by reference to Exhibit 4.1 of the Company's
March 20, 1998 relating to the Company's Registration Statement on Form S-3 (Reg. No. 333-56755)
private placement of Common Stock
10.1 Amended and Restated 1991 Stock Incorporate by reference to the Company's Annual Report on
Compensation Plan dated as of April 1, Form 10K for the fiscal year ended December 31, 1995
1995
10.2 1994 Employee Stock Purchase Plan Incorporated by reference to the Company's Registration
Statement on Form S-8 filed June 8, 1994
</TABLE>
-45-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.3 Product Development and Distribution Incorporated by reference to the Company's report on Form 8-K
Agreement between Astra AB and the filed on February 13, 1992
Company dated January 30, 1992,
portions of which are subject to
confidential treatment
10.4 Performance Plan of the Company Incorporated by reference to the Company's Annual Report on
Form 10-K for the transition period ended December 31, 1992
10.5 Form of Agreement relating to Change of Incorporated by reference to the Company's Annual Report on
Control Form 10-K for the transition period ended December 31, 1992
10.6 Termination Agreement between the Incorporated by reference to the Company's report on Form 8-K
Company and SmithKline Beecham p.l.c. filed April 27, 1995
relating to sCR1 dated April 7, 1995,
portions of which are subject to
confidential treatment
10.7 Pledge Agreement between the Company Incorporated by reference to the Company's Quarterly Report on
and Fleet Credit Corporation dated Form 10-Q for September dated September 30, 1995
October 24, 1995
10.8 Amended and Restated Employment Page 48
Agreement between the Company and
Una S. Ryan, Ph.D. dated August 20, 1998
10.9 Severance Agreement between the Incorporated by reference to the Company's Annual Report on
Company and Norman W. Gorin dated Form 10-K for the fiscal year ended December 31, 1996
June 1, 1996
10.10 Consulting Agreement between the Incorporated by reference to the Company's Annual Report on
Company and James D. Grant dated May Form 10-K for the fiscal year ended December 31, 1996
28, 1996
10.11 Second Amended and Restated Product Incorporated by reference to the Company's Annual Report on
Development and Distribution Agreement Form 10-K for the fiscal year ended December 31, 1996
between Astra AB and the Company dated May 1,
1996, portions of which are subject to
confidential treatment
10.12 Commercial Lease Agreement of May 1, Incorporated by reference to the Company's report on
1997 between the Company and Form 10-Q for the quarterly period ended September 30, 1996
Fourth Avenue Ventures Limited
10.13 Option Agreement by and between the Incorporated by reference to the Company's report on Form
Company and Novartis Pharma AG dated 10-Q for the quarterly period ended September 30, 1997
as of October 31, 1997, portions of which are
subject to a request for confidential treatment
10.14 Settlement Agreement between the Incorporated by reference to the Company's Annual Report on
Company and Forest City 38 Sidney Form 10-K for the fiscal year ended December 31, 1997
Street, Inc.; Forest City Management, Inc.;
and Forest City Enterprises, Inc.
21.0 List of Subsidiaries Incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1993
23.0 Consent of Independent Accountants Page 60
27.0 Financial Data Schedule Page 61
</TABLE>
(B) Reports on Form 8-K.
During 1998, the following reports on Form 8-K were filed: Form 8-K dated August
21, 1998, Form 8-K dated August 29, 1998 and Form 8-K/A dated September 29,
1998.
-46-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AVANT IMMUNOTHERAPEUTICS, INC. Date
by: /s/UNA S. RYAN March 18, 1999
-------------
Una S. Ryan
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/J. BARRIE WARD Chairman March 18, 1999
----------------
(J. Barrie Ward)
/s/UNA S. RYAN President, Chief Executive Officer March 18, 1999
------------- and Director
(Una S. Ryan)
/s/JAMES E. O'NEILL Director of Finance March 18, 1999
------------------
(James E. O'Neill)
/s/FREDERICK W. KYLE Director March 18, 1999
-------------------
(Frederick W. Kyle)
/s/JOHN W. LITTLECHILD Director March 18, 1999
---------------------
(John W. Littlechild)
/s/THOMAS R. OSTERMUELLER Director March 18, 1999
------------------------
(Thomas R. Ostermueller)
/s/HARRY H. PENNER, JR. Director March 18, 1999
----------------------
(Harry H. Penner, Jr.)
</TABLE>
-47-
Exhibit 10.8
Amended and Restated Employment Agreement between
the Company and Una S. Ryan dated August 20, 1998
<PAGE>
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement"), made as
of the 20th day of August, 1998 (the "Effective Date"), by and between T Cell
Sciences, Inc., a Delaware corporation with its main office in Needham,
Massachusetts (the "Company") and Una S. Ryan, Ph.D. (the "Executive"), amends,
restates and supersedes the Employment Agreement, dated as of May 28, 1996, by
and between the Company and the Executive.
WITNESSETH
In consideration of the mutual covenants contained herein, the Company and
the Executive agree as follows:
1. Employment. The Company agrees to employ the Executive and the Executive
agrees to be employed by the Company on the terms and conditions hereinafter set
forth.
2. Capacity. The Executive shall serve the Company as its President and Chief
Executive Officer, and shall serve the Company in such other or additional
offices in which the Executive may be requested to serve by the Board of
Directors of the Company (the "Board"). In such capacity or capacities, the
Executive shall perform such services and duties in connection with the
business, affairs and operations of the Company as may be assigned or delegated
to her from time to time by or under the authority of the Board.
3. Term. Subject to the provisions of Section 6, the term of employment pursuant
to this Agreement (the "Term") shall be one (1) year from the Effective Date and
shall be renewed automatically for periods of one (1) year commencing on the
anniversary of the Effective Date and on each subsequent anniversary thereafter,
unless either the Executive or the Company gives written notice to the other not
less than sixty (60) days prior to the date of any such anniversary of such
party's election not to extend the Term.
4. Compensation and Benefits. The regular compensation and benefits payable to
the Executive under this Agreement shall be as follows:
a. Salary. For all services rendered by the Executive under this Agreement,
the Company shall pay the Executive a salary (the "Salary") at the annual rate
of Two Hundred Fifty Nine Thousand Five Hundred Eighty-Four Dollars ($259,584),
subject to increase from time to time in the discretion of the Board or the
Compensation Committee of the Board (the "Compensation Committee"). The Salary
shall be payable in periodic installments in accordance with the Company's usual
practice for its senior executives.
b. Bonus. The Executive shall be entitled to participate in the Performance
Incentive Plan as established by the Board in accordance with and subject to the
terms and conditions established in the sole discretion of the Board. The
Executive will be eligible to earn up to an amount equal to thirty percent (30%)
of her then current Salary each year under the Performance Incentive Plan.
-1-
<PAGE>
c. Regular Benefits. The Executive shall be entitled to participate in any
employee benefit plans, medical insurance plans, life insurance plans,
disability income plans, retirement plans, vacation plans and other benefit
plans which the Company may from time to time have in effect for all or most of
its senior executives. Such participation shall be subject to the terms of the
applicable plan documents, generally applicable policies of the Company,
applicable law and the discretion of the Board, the Compensation Committee or
any administrative or other committee provided for in or contemplated by any
such plan. Nothing contained in this Agreement shall be construed to create any
obligation on the part of the Company to establish any such plan or to maintain
the effectiveness of any such plan which may be in effect from time to time.
d. Equity Incentives. The Executive shall be eligible to participate in the
T Cell Sciences, Inc. Amended and Restated 1991 Stock Compensation Plan (the
"Stock Plan"), as adopted by the Board and as approved by the stockholders of T
Cell and as may be amended, modified or terminated from time to time, in
accordance with its terms and the terms of any individual agreement regarding
awards of options (incentive or nonqualified), restricted common shares,
performance share units or stock equivalents under the Stock Plan entered into
by and between the Company and the Executive in accordance with the Stock Plan.
Nothing in this Paragraph 4(d) is intended to alter, or shall be interpreted as
in any way altering, the Executive's rights under any such agreements entered
into by the Executive and the Company prior to the execution of this Agreement.
e. Expenses. The Company will pay or reimburse the Executive for all
transportation, hotel, meals and other out-of-pocket expenses (in each case in
accordance with the Company's policies applicable to executive officers,
including policies regarding documentation of expenses) reasonably incurred by
the Employee in connection with her performance of services for the Company as
herein provided.
f. Exclusivity of Salary and Benefits. The Executive shall not be entitled
to any payments or benefits other than those provided under this Agreement.
5. Extent of Service. During the Executive's employment under this Agreement,
the Executive shall, subject to the direction and supervision of the Board,
devote the Executive's full business time, best efforts and business judgment,
skill and knowledge to the advancement of the Company's interests and to the
discharge of the Executive's duties and responsibilities under this Agreement.
The Executive shall not engage in any other business activity, except as may be
approved by the Board; provided, that nothing in this Agreement shall be
construed as preventing the Executive from:
-2-
<PAGE>
a. investing the Executive's assets in any company or other entity in a
manner not prohibited by Section 7(e) and in such form or manner as shall not
require any material activities on the Executive's part in connection with the
operations or affairs of the companies or other entities in which such
investments are made; or
b. engaging in religious, charitable or other community or non-profit
activities that do not impair the Executive's ability to fulfill the Executive's
duties and responsibilities under this Agreement.
6. Termination and Termination Benefits. Notwithstanding the provisions of
Section 3, the Executive's employment under this Agreement shall terminate under
the following circumstances set forth in this Section 6.
a. Termination by the Company for Cause. The Executive's employment under
this Agreement may be terminated for Cause without further liability on the part
of the Company effective immediately upon a vote of the Board and written notice
to the Executive setting forth in reasonable detail the circumstances that the
Company reasonably believes give rise to Cause for termination of the
Executive's employment. Only the following shall constitute Cause for such
termination:
(i) dishonest statements or acts of the Executive with respect to the
Company or any affiliate of the Company;
(ii) the conviction of the Executive for, or the entry of a pleading
of guilty or nolo contendere (or the equivalent) by the Executive as
to (A) a felony or (B) any misdemeanor involving moral turpitude,
deceit, dishonesty or fraud;
(iii) gross negligence, willful misconduct or willful insubordination
of the Executive with respect to the Company or any affiliate of the
Company; or
(iv) willful breach by the Executive of any of the Executive's
obligations under this Agreement, which breach results in a material
injury to the Company.
No act or failure to act shall be considered "willful" for this purpose unless
done, or omitted to be done, by the Executive other than in good faith in the
reasonable belief that such act or omission was in the best interest of the
Company.
b. Termination by the Executive. The Executive's employment under this
Agreement may be terminated by the Executive by written notice to the Board at
least sixty (60) days prior to such termination. Upon receipt of such notice,
the Company may elect to provide the Executive with pay in lieu of notice. For
purposes of this Section 6(b), the Company is only required to pay the Executive
an amount equal to her Salary pro rated for the period of time for which the
Company waives notice.
-3-
<PAGE>
c. Termination by the Company Without Cause. Subject to the payment of
Termination Benefits pursuant to Section 6(e), the Executive's employment under
this Agreement may be terminated by the Company without cause upon written
notice to the Executive.
d. Change in Control. The Executive's employment under this Agreement may
be terminated by the Executive for Good Reason within one (1) year of a Change
in Control by written notice to the Board; provided, that the Executive shall
provide the Board with written notice of any such Good Reason at least thirty
(30) days in advance of a voluntary termination of employment and the Company
shall have the opportunity to remedy or cure the asserted basis for any such
Good Reason voluntary termination within such thirty-day period.
(i) "Change in Control" shall have the meaning set forth in Section
1.2 of the Stock Plan, without regard to the Board's right to revoke a
resolution declaring that a Change in Control has occurred.
(ii) "Good Reason" shall mean:
(A) the assignment, absent the Executive's written consent, to
the Executive of any duties substantially inconsistent with the
Executive's position, status or authority as the Company's
President and Chief Executive Officer as in effect immediately
prior to the Change in Control or any alteration in the nature or
status of the Executive's responsibilities to a significantly
lesser position;
(B) loss, absent the Executive's written consent, of the titles
President or Chief Executive Officer;
(C) the appointment, absent the Executive's written consent, of
any other person as Co-President or Co-Chief Executive Officer
with the Executive;
(D) material reduction in the Executive's Salary, incentive
compensation, or benefits or perquisites as in effect immediately
prior to the Change in Control;
(E) the relocation of the principal place of the Executive's
employment after the Change in Control to a location more than 50
miles from the principal place of the Executive's employment as
of the Effective Date without the Executive's written consent; or
-4-
<PAGE>
(F) the failure by the Company to assign this Agreement to any
successor pursuant to Section 14.
e. Certain Termination Benefits. Unless otherwise specifically provided in
this Agreement or otherwise required by law, all compensation and benefits
payable to the Executive under this Agreement shall terminate on the date of
termination of the Executive's employment under this Agreement. Notwithstanding
the foregoing, in the event of termination of the Executive's employment with
the Company pursuant to Section 6(c) or (d) above, the Company shall provide to
the Executive the following termination benefits ("Termination Benefits"):
(i) a lump sum amount equal to the Executive's annual Salary at the
rate then in effect pursuant to Section 4(a);
(ii) continuation of group health plan benefits to the extent
authorized by and consistent with 29 U.S.C. ss.1161 et seq. (commonly
known as "COBRA"), with the cost of the regular premium for such
benefits shared in the same relative proportion by the Company and the
Executive as in effect on the date of termination, unless the
termination of employment pursuant to Section 6(c) or 6(d) occurs
within one year of a Change in Control, in which case the Company
shall pay all premiums; and
(iii) a mutually agreed upon press release announcing the termination
of the Executive's employment and mutually agreed upon written
reference from the Company for the Executive.
The Termination Benefits set forth in (ii) above shall continue for twelve
(12) months after the date of termination so long as the Executive otherwise
remains eligible for continuation under COBRA. Nothing in this Section 6(e)
shall be construed to affect the Executive's right to receive COBRA continuation
entirely at the Executive's own cost to the extent that the Executive may
continue to be entitled to COBRA continuation after the Executive's right to
cost sharing under Section 6(e)(ii) ceases. It is the intention of the Executive
and of the Company that no payments by the Company to or for the benefit of the
Executive under this Agreement or any other agreement or plan, if any, pursuant
to which the Executive is entitled to receive payments or benefits shall be
nondeductible to the Company by reason of the operation of Section 280G of the
Internal Revenue Code ("Code") relating to parachute payments or any like
statutory or regulatory provision. Accordingly, and notwithstanding any other
provision of this Agreement or any such agreement or plan, if by reason of the
operation of said Section 280G or any like statutory or
-5-
<PAGE>
regulatory provision, any such payments exceed the amount which can be deducted
by the Company, such payments shall be reduced to the maximum amount which can
be deducted by the Company. To the extent that payments exceeding such maximum
deductible amount have been made to or for the benefit of the Executive, such
excess payments shall be refunded to the Company with interest thereon at the
applicable Federal rate determined under Section 1274(d) of the Internal Revenue
Code, compounded annually, or at such other rate as may be required in order
that no such payments shall be nondeductible to the Company by reason of the
operation of said Section 280G or any like statutory or regulatory provision. To
the extent that there is more than one method of reducing the payments to bring
them within the limitations of said Section 280G or any like statutory or
regulatory provision, the Executive shall determine which method shall be
followed, provided that if the Executive fails to make such determination within
forty-five (45) days after the Company has given notice of the need for such
reduction, the Company may determine the method of such reduction in its sole
discretion.
f. Disability. If the Executive shall be disabled so as to be unable to
perform the essential functions of the Executive's then existing position or
positions under this Agreement with or without reasonable accommodation, the
Board may remove the Executive from any responsibilities and/or reassign the
Executive to another position with the Company for the remainder of the Term or
during the period of such disability. If the period of disability extends for
more than six (6) months, the Company may terminate the Executive's employment
without further liability on the part of the Company. If any question shall
arise as to whether during any period the Executive is disabled so as to be
unable to perform the essential functions of the Executive's then existing
position or positions with or without reasonable accommodation, the Executive
may, and at the request of the Company shall, submit to the Company a
certification in reasonable detail by a physician selected by the Company to
whom the Executive or the Executive's guardian has no reasonable objection as to
whether the Executive is so disabled or how long such disability is expected to
continue, and such certification shall for the purposes of this Agreement be
conclusive of the issue. The Executive shall cooperate with any reasonable
request of the physician in connection with such certification. If such question
shall arise and the Executive shall fail to submit such certification, the
Company's determination of such issue shall be binding on the Executive. Nothing
in this Section 6(f) shall be construed to waive the Executive's rights, if any,
under existing law including, without limitation, the Family and Medical Leave
Act of 1993, 29 U.S.C. ss.2601 et seq., the Americans with Disabilities Act, 42
U.S.C.
ss.12101 et seq., and Mass.Gen.L. ch. 151B.
g. Death or Retirement. The Executive's employment under this Agreement
will be deemed to have terminated without further liability on the part of the
Company if the Executive dies or retires.
-6-
<PAGE>
7. Confidential Information, Noncompetition and Assignment.
a. Confidential Information. As used in this Agreement, "Confidential
Information" means information belonging to the Company which is of value to the
Company in the course of conducting its business and the disclosure of which
could result in a competitive or other disadvantage to the Company. Confidential
Information includes, without limitation, financial information, reports, and
forecasts; inventions, improvements and other intellectual property; trade
secrets; know-how; designs, processes or formulae; research data or results,
inventions, cell lines or products; software; market or sales information or
plans; customer lists; and business plans, prospects and opportunities (such as
possible acquisitions or dispositions of businesses or facilities) which have
been discussed or considered by the management of the Company. Confidential
Information includes information developed by the Executive in the course of the
Executive's employment by the Company, as well as other information to which the
Executive may have access in connection with the Executive's employment.
Confidential Information also includes the confidential information of others
with which the Company has a business relationship. Notwithstanding the
foregoing, Confidential Information does not include information in the public
domain, unless due to breach of the Executive's duties under Section 7(a). The
Executive understands and agrees that the Executive's employment creates a
relationship of confidence and trust between the Executive and the Company with
respect to all Confidential Information. At all times, both during the
Executive's employment with the Company and after its termination, the Executive
will keep in confidence and trust all such Confidential Information, and will
not use or disclose any such Confidential Information without the written
consent of the Company, except as may be necessary in the ordinary course of
performing the Executive's duties to the Company.
b. Assignment of Rights. Any and all information, data, inventions,
discoveries, materials, notebooks and other work product which the Executive
conceives, develops or acquires during her employment with the Company or within
six (6) months after the termination of Executive's employment with the Company,
which directly or indirectly relates to work performed for the Company shall be
the sole and exclusive property of the Company. The Executive shall promptly
execute any and all documents necessary and take such further actions as the
Company may deem necessary to assign any and all of the Executive's right, title
and interest in such property to the Company. The Executive may publish research
results after the Company, in its sole discretion, has reviewed, for purposes of
determining patentability and maintaining trade secrets, and has approved the
proposed publication.
c. Intellectual Property. During the Executive's employment at the
Company, the Executive shall promptly assist with and execute any and all
applications, assignments or other documents which an officer or director of the
Company shall deem necessary or useful in order to obtain and maintain patent,
trademark or other intellectual property protection for the Company's products
or services. After the termination date of her employment with the Company, the
Executive shall use reasonable efforts to assist the Company on intellectual
property matters as they relate to her employment, and the Company shall
reasonably compensate the Executive for her time and expense.
-7-
<PAGE>
d. Documents, Records, etc. All documents, records, data, apparatus,
equipment and other physical property, whether or not pertaining to Confidential
Information, which are furnished to the Executive by the Company or are produced
by the Executive in connection with the Executive's employment will be and
remain the sole property of the Company. The Executive will return to the
Company all such materials and property as and when requested by the Company. In
any event, the Executive will return all such materials and property immediately
upon termination of the Executive's employment for any reason. The Executive
will not retain with the Executive any such material or property or any copies
thereof after such termination.
e. Noncompetition and Nonsolicitation. During the Term and for one (1)
year thereafter, the Executive (i) will not, directly or indirectly, whether as
owner, partner, shareholder, consultant, agent, employee, co-venturer or
otherwise, engage, participate, assist or invest in any Competing Business (as
hereinafter defined); (ii) will refrain from directly or indirectly employing,
attempting to employ, recruiting or otherwise soliciting, inducing or
influencing any person to leave employment with the Company (other than
terminations of employment of subordinate employees undertaken in the course of
the Executive's employment with the Company); and (iii) will refrain from
soliciting or encouraging any customer or supplier to terminate or otherwise
modify adversely its business relationship with the Company. The Executive
understands that the restrictions set forth in this Section 7(e) are intended to
protect the Company's interest in its Confidential Information and established
employee, customer and supplier relationships and goodwill, and agrees that such
restrictions are reasonable and appropriate for this purpose.
For purposes of this Agreement, the term "Competing Business" shall mean
a business enterprise, whether for profit or not for profit, engaged in the
research, development or marketing of products or services in or relating to T
Cell antigen receptor, complement receptor or other technology fields or
businesses in which the Company is engaged or the Company has investigated
entering within one year prior to termination of the Executive's employment.
Notwithstanding the foregoing, the Executive may own up to one percent (1%) of
the outstanding stock of a publicly held corporation which constitutes or is
affiliated with a Competing Business. The Executive may request the Company to
waive, and the Company, in its sole discretion, may waive its rights under this
Subsection 7(e).
8. Third-Party Agreements and Rights. The Executive hereby confirms that the
Executive is not bound by the terms of any agreement with any previous Company
or other party which restricts in any way the Executive's use or disclosure of
information or the Executive's engagement in any business. The Executive
represents to the Company that the Executive's execution of this Agreement, the
Executive's employment with the Company and the performance of the Executive's
proposed duties for the Company will not violate any obligations the Executive
may have to any such previous Company or other party. In the
-8-
<PAGE>
Executive's work for the Company, the Executive will not disclose or make use of
any information in violation of any agreements with or rights of any such
previous Company or other party, and the Executive will not bring to the
premises of the Company any copies or other tangible embodiments of non-public
information belonging to or obtained from any such previous employment or other
party.
<PAGE>
9. Litigation and Regulatory Cooperation. During and for six (6) years after the
Executive's employment, the Executive shall cooperate fully with the Company in
the defense or prosecution of any claims or actions now in existence or which
may be brought in the future against or on behalf of the Company which relate to
events or occurrences that transpired while the Executive was employed by the
Company. The Executive's full cooperation in connection with such claims or
actions shall include, but not be limited to, being available to meet with
counsel to prepare for discovery or trial and to act as a witness on behalf of
the Company at mutually convenient times. During and for six (6) years after the
Executive's employment, the Executive also shall cooperate fully with the
Company in connection with any investigation or review of any federal, state or
local regulatory authority as any such investigation or review relates to events
or occurrences that transpired while the Executive was employed by the Company.
The Company shall reimburse the Executive for any reasonable out-of-pocket
expenses incurred in connection with the Executive's performance of her
obligations pursuant to this Section 9. The Company shall pay the Executive at
the rate of $300 per hour (said rate to be adjusted for inflation from and after
1998 based on then applicable Department of Labor indices for determining
inflation rates in the Boston metropolitan area) for all time spent in the
performance of her obligations pursuant to this Section 9 following the
termination of her employment, other than time spent actually testifying under
oath or directly responding to questions by governmental agents.
10. Injunction. The Executive agrees that it would be difficult to measure any
damages caused to the Company which might result from any breach by the
Executive of the promises set forth in Section 7, and that in any event money
damages would be an inadequate remedy for any such breach. Accordingly, subject
to Section 11 of this Agreement, the Executive agrees that if the Executive
breaches, or proposes to breach, any portion of this Agreement, the Company
shall be entitled, in addition to all other remedies that it may have, to an
injunction or other appropriate preliminary equitable relief to restrain any
such breach without showing or proving any actual damage to the Company.
<PAGE>
11. Arbitration of Disputes. Any controversy or claim arising out of or relating
to this Agreement or the breach thereof or otherwise arising out of the
Executive's employment or the termination of that employment (including, without
limitation, any claims of unlawful employment discrimination whether based on
age or otherwise) shall, to the fullest extent permitted by law, be settled by
arbitration in any forum and form agreed upon by the parties or, in the absence
of such an agreement, under the auspices of the American Arbitration Association
("AAA") in Boston, Massachusetts in accordance with the Employment Dispute
Resolution
-9-
<PAGE>
Rules of the AAA, including, but not limited to, the rules and procedures
applicable to the selection of arbitrators, except that the arbitrator shall
apply the law as established by decisions of the U.S. Supreme Court, the Court
of Appeals for the First Circuit, the U.S. District Court for the District of
Massachusetts and the Supreme Judicial Court of the Commonwealth of
Massachusetts in deciding the merits of claims and defenses under state or
federal law as applicable to the claims raised, including any state or federal
anti-discrimination law. In the event that any person or entity other than the
Executive or the Company may be a party with regard to any such controversy or
claim, such controversy or claim shall be submitted to arbitration subject to
such other person or entity's agreement. Judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. This Section
11 shall be specifically enforceable. Notwithstanding the foregoing, this
Section 11 shall not preclude either party from pursuing a court action for the
sole purpose of obtaining a temporary restraining order or other preliminary
equitable relief in circumstances in which such relief is appropriate,
including, without limitation, pursuant to Section 10; provided, that any other
relief shall be pursued through an arbitration proceeding pursuant to this
Section 11.
12. Consent to Jurisdiction. To the extent that any court action is permitted
consistent with or requested to enforce Section 7, 10 or 11 of this Agreement,
the parties hereby consent to the jurisdiction of the Superior Court of the
Commonwealth of Massachusetts and the United States District Court for the
District of Massachusetts. Accordingly, with respect to any such court action,
the parties (a) submit to the personal jurisdiction of such courts; (b) consent
to service of process; and (c) waive any other requirement (whether imposed by
statute, rule of court, or otherwise) with respect to personal jurisdiction or
service of process.
13. Taxation. All payments and benefits hereunder shall be subject to
appropriate tax withholding and reporting, as determined by the Company.
14. Integration. This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes all prior
agreements between the parties with respect to any related subject matter.
15. Assignment; Successors and Assigns, Etc. Neither the Company nor the
Executive may make any assignment of this Agreement or any interest herein, by
operation of law or otherwise, without the prior written consent of the other
party; provided, that the Company may assign its rights under this Agreement
without the consent of the Executive in the event that the Company shall effect
a reorganization, consolidate with or merge into any other corporation,
partnership, organization or other entity, or transfer all or substantially all
of its properties or assets to any other corporation, partnership, organization
or other entity. This Agreement shall inure to the benefit of and be binding
upon the Company and the Executive, their respective successors, executors,
administrators, heirs and permitted assigns.
-10-
<PAGE>
16. Enforceability. If any portion or provision of this Agreement (including,
without limitation, any portion or provision of any section of this Agreement)
shall to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
<PAGE>
17. Waiver. No waiver of any provision hereof shall be effective unless made in
writing and signed by the waiving party. The failure of any party to require the
performance of any term or obligation of this Agreement, or the waiver by any
party of any breach of this Agreement, shall not prevent any subsequent
enforcement of such term or obligation or be deemed a waiver of any subsequent
breach.
18. Notices. Any notices, requests, demands and other communications provided
for by this Agreement shall be sufficient if in writing and delivered in person
or sent by a nationally recognized overnight courier service or by registered or
certified mail, postage prepaid, return receipt requested, to the Executive at
the last address the Executive has filed in writing with the Company or, in the
case of the Company, at its main offices, attention of the Chief Executive
Officer, and shall be effective on the date of delivery in person or by courier
or three (3) days after the date mailed.
19. Amendment. This Agreement may be amended or modified only by a written
instrument signed by the Executive and by a duly authorized representative of
the Company.
20. Governing Law. This is a Massachusetts contract and shall be construed under
and be governed in all respects by the laws of the Commonwealth of
Massachusetts, without giving effect to the conflict of laws principles of such
Commonwealth.
21. Counterparts. This Agreement may be executed in any number of counterparts,
each of which when so executed and delivered shall be taken to be an original;
but such counterparts shall together constitute one and the same document.
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Company, by its duly authorized officer, and by the Executive,
as of the Effective Date.
T CELL SCIENCES, INC.
8/20/98 By: /s/ Thomas R. Ostermueller
- ----------------------------- -----------------------------------
Date Thomas Ostermueller, Director and
Chairman, Compensation Committee
8/20/98 /s/ Una S. Ryan
- ----------------------------- -----------------------------------
Date Executive
-11-
Exhibit 23.0
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (Nos. 33-43640, 33-54372, 33-80036, 33-80048 and
333-62017), in the Prospectus constituting part of the Registration Statement on
Form S-3 (Nos. 33-72172, 33-69950, 33-64021, 333-08607, 333-56755 and 333-64761)
and in the Prospectus consituting part of the Registration Statement on Form S-4
(No. 333-59215) of AVANT Immunotherapeutics, Inc. (f/k/a T Cell Sciences, Inc.)
of our report dated March 12, 1999 appearing in the Annual Report on Form 10-K
for the year ended December 31, 1998.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 18, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed financial statements of AVANT Immunotherapeutics, Inc. for the Twelve
Months Ended December 31, 1998 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 8,937,200
<SECURITIES> 4,903,100
<RECEIVABLES> 11,200
<ALLOWANCES> 0
<INVENTORY> 6,100
<CURRENT-ASSETS> 15,615,700
<PP&E> 4,021,800
<DEPRECIATION> (2,910,400)
<TOTAL-ASSETS> 22,650,100
<CURRENT-LIABILITIES> 3,317,600
<BONDS> 0
0
0
<COMMON> 42,500
<OTHER-SE> 18,727,100
<TOTAL-LIABILITY-AND-EQUITY> 22,650,100
<SALES> 55,900
<TOTAL-REVENUES> 2,150,400
<CGS> 22,300
<TOTAL-COSTS> 54,687,600
<OTHER-EXPENSES> (187,900)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (571,900)
<INCOME-PRETAX> (51,799,700)
<INCOME-TAX> 0
<INCOME-CONTINUING> (51,799,700)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (51,799,700)
<EPS-PRIMARY> (1.56)
<EPS-DILUTED> (1.56)
</TABLE>
