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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-15006
AVANT IMMUNOTHERAPEUTICS, INC.
(Exact name of registrant as specified in charter)
DELAWARE NO. 13-3191702
(State of Incorporation) (I.R.S. Employer Identification No.)
119 FOURTH AVENUE, NEEDHAM, MASSACHUSETTS 02494-2725
(Address of principal executive offices) (Zip code)
(781) 433-0771
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
Outstanding as of
Class May 5, 1999
Common Stock, par value $.001 42,528,765
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AVANT IMMUNOTHERAPEUTICS, INC.
TABLE OF CONTENTS
MARCH 31, 1999
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PAGE
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PART I -- FINANCIAL INFORMATION
Condensed Consolidated Balance Sheet at March 31, 1999 and December 31, 1998.........................3
Condensed Consolidated Statement of Operations for the Three Months Ended
March 31, 1999 and 1998.....................................................................4
Condensed Consolidated Statement of Cash Flows for the Three Months Ended
March 31, 1999 and 1998.....................................................................5
Notes to Condensed Consolidated Financial Statements.................................................6
Management's Discussion and Analysis of Financial Condition and Results of
Operations.........................................................................................8
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings..........................................................................10
Item 5. Other Information..........................................................................10
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits...............................................................................10
B. Reports on Form 8-K....................................................................10
Signatures..........................................................................................11
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2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AVANT IMMUNOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1999 AND DECEMBER 31, 1998
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<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
- ----------------------------------------------------------------- --------------------- ---------------------
<S> <C> <C> (audited)
ASSETS
Current Assets:
Cash and Cash Equivalents $ 10,983,100 $ 8,937,200
Marketable Securities -- 4,903,100
Current Portion Restricted Cash 750,000 750,000
Current Portion Lease Receivable 395,700 395,700
Prepaid and Other Current Assets, Net 635,400 629,700
- ----------------------------------------------------------------- --------------------- ---------------------
Total Current Assets 12,764,200 15,615,700
- ----------------------------------------------------------------- --------------------- ---------------------
Property and Equipment, Net 1,478,400 1,111,400
Restricted Cash 325,000 365,000
Long-Term Lease Receivable 775,400 827,300
Other Assets 4,334,300 4,730,700
- ----------------------------------------------------------------- --------------------- ---------------------
Total Assets $ 19,677,300 $ 22,650,100
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 741,600 $ 363,700
Accrued Expenses 857,900 1,184,700
Deferred Revenue 500,000 750,000
Short-Term Note Payable 750,000 750,000
Current Portion Lease Payable 269,200 269,200
- ----------------------------------------------------------------- --------------------- ---------------------
Total Current Liabilities 3,118,700 3,317,600
- ----------------------------------------------------------------- --------------------- ---------------------
Long-Term Lease Payable 514,000 562,900
- ----------------------------------------------------------------- --------------------- ---------------------
Stockholders' Equity:
Common Stock, $.001 Par Value 42,500 42,500
Additional Paid-In Capital 140,792,400 140,777,200
Less: Common Treasury Shares at Cost (12,200) (13,800)
Accumulated Deficit (124,778,100) (122,036,300)
- ----------------------------------------------------------------- --------------------- ---------------------
Total Stockholders' Equity 16,044,600 18,769,600
- ----------------------------------------------------------------- --------------------- ---------------------
Total Liabilities and Stockholders' Equity $ 19,677,300 $ 22,650,100
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SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
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AVANT IMMUNOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE QUARTERS ENDED MARCH 31, 1999 AND 1998
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<CAPTION>
MARCH 31, MARCH 31,
1999 1998
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<S> <C> <C>
OPERATING REVENUE:
Product Sales, Product Development and
Licensing Agreements $ 337,900 $ 361,000
- ----------------------------------------------------------------- --------------------- ---------------------
OPERATING EXPENSE:
Research, Development and Operations 1,891,100 1,210,000
General and Administrative 969,800 665,600
Amortization of Goodwill 409,800 --
- ----------------------------------------------------------------- --------------------- ---------------------
Total Operating Expenses 3,270,700 1,875,600
- ----------------------------------------------------------------- --------------------- ---------------------
Operating Loss (2,932,800) (1,514,600)
Non-Operating Income, Net 191,000 99,100
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Net Loss $ (2,741,800) $ (1,415,500)
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Net Loss Per Common Share $ (0.06) $ (0.05)
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Weighted Average Common Shares Outstanding 42,526,300 26,774,000
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SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
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AVANT IMMUNOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
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<CAPTION>
MARCH 31, MARCH 31,
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (2,741,800) $ (1,415,500)
Adjustments to Reconcile Net Loss to Net Cash
Used by Operating Activities:
Depreciation and Amortization 564,100 86,400
Net Change in Current Assets and Current Liabilities (204,700) (532,800)
- ----------------------------------------------------------------- --------------------- ---------------------
Net Cash Used by Operating Activities (2,382,400) (1,861,900)
- ----------------------------------------------------------------- --------------------- ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Property and Equipment (482,000) (27,800)
Other Noncurrent Assets (49,700) (91,600)
Decrease in Restricted Cash 40,000 25,000
Redemption of Marketable Securities 4,903,100 --
- ----------------------------------------------------------------- --------------------- ---------------------
Net Cash Provided (Used) by Investing Activities 4,411,400 (94,400)
- ----------------------------------------------------------------- --------------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the Exercise of Stock Options 16,300 --
Net Proceeds from Stock Issuance 600 3,701,900
- ----------------------------------------------------------------- --------------------- ---------------------
Net Cash Provided by Financing Activities 16,900 3,701,900
- ----------------------------------------------------------------- --------------------- ---------------------
Increase in Cash and Cash Equivalents 2,045,900 1,745,600
Cash and Cash Equivalents at Beginning of Period 8,937,200 6,436,300
- ----------------------------------------------------------------- --------------------- ---------------------
Cash and Cash Equivalents at End of Period $ 10,983,100 $ 8,181,900
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</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
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AVANT IMMUNOTHERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(1) NATURE OF BUSINESS
AVANT Immunotherapeutics, Inc. ("AVANT" or the "Company") is a
biopharmaceutical company engaged in the discovery, development and
commercialization of products that harness the human immune response to prevent
and treat disease. The Company's lead therapeutic program is focused on
compounds that inhibit the inappropriate activity of the complement cascade
which is a vital part of the body's immune defense system. The Company is also
engaged in the development of Therapore(TM), a novel system for the delivery of
immunotherapeutics for chronic viral infections and certain cancers. The Company
and its collaborators are developing vaccines using the proprietary adjuvants,
Adjumer(TM) and Micromer(TM), for the prevention of influenza, Lyme disease, and
respiratory syncytial virus (RSV). In a further collaboration, the Company is
developing an oral human rotavirus vaccine, and is developing its own
proprietary vaccine for the management of atherosclerosis.
The condensed consolidated financial statements include the accounts of
AVANT Immunotherapeutics, Inc. and its wholly owned subsidiary, T Cell
Diagnostics, Inc. All intercompany transactions have been eliminated.
(2) INTERIM FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements for the
three months ended March 31, 1999 and 1998 include the consolidated accounts of
the Company, and have been prepared in accordance with generally accepted
accounting principles and with the instructions to Form 10-Q and article 10 of
Regulation S-X. In the opinion of management, the information contained herein
reflects all adjustments, consisting solely of normal recurring adjustments,
that are necessary to present fairly the financial positions at March 31, 1999
and December 31, 1998, the results of operations for the quarters ended March
31, 1999 and 1998, and the cash flows for the three months ended March 31, 1999
and 1998. The results of operations for the quarter ended March 31, 1999 are not
necessarily indicative of results for any future interim period or for the full
year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted, although the Company believes that the disclosures
included are adequate to make the information presented not misleading. The
condensed consolidated financial statements and the notes included herein should
be read in conjunction with footnotes contained in the Company's Annual Report
on Form 10-K for the year ended December 31, 1998.
6
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SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995: STATEMENTS CONTAINED IN THE FOLLOWING, ITEM 2. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, THAT
ARE NOT HISTORICAL FACTS 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 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is engaged in the discovery, development and
commercialization of products that harness the human immune response to prevent
and treat disease. The Company's products derive from a broad set of
complementary technologies with the ability to inhibit the complement system,
regulate T and B cell activity, and enable the creation and delivery of
preventative and therapeutic vaccines. The Company is using these technologies
to develop vaccines and immunotherapeutics that prevent or treat disease caused
by infectious organisms, and drugs and treatment vaccines that modify
undesirable activity by the body's own proteins or cells.
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. AVANT issued 14,036,400 shares and warrants to purchase
1,811,200 shares of its common stock in exchange for all of the outstanding
common stock of VRI, on the basis of 1.55 shares and .20 of a warrant to
purchase one share of AVANT's common stock for each share of VRI common stock.
ERSULTS OF OPERATIONS
The Company reported a consolidated net loss of $2,741,800, or $.06 per
share, for the first quarter ended March 31, 1999, an increase of $1,326,300, or
93.7%, compared with a net loss of $1,415,500, or $.05 per share, for the first
quarter ended March 31, 1998. The increase in net loss for the first quarter of
1999 compared to the first quarter of 1998 is primarily due to an increase in
operating expense resulting from the acquisition of VRI combined with a $409,800
charge for the amortization of goodwill.
Total operating revenue decreased $23,100, or 6.4%, to $337,900 for the
first quarter of 1999 compared to $361,000 for the first quarter of 1998.
Operating revenue for the first quarter of 1998 included product sales revenue
of $27,400 from sales of the company's TRAx(R) test kit. The company has
suspended further development and sales efforts of its TRAx(R) product franchise
while it continues to focus its efforts on establishing a partnership for the
TRAx(R) technology.
Total operating expense increased $1,395,100, or 74.4%, to
$3,270,700 for the first quarter of 1999 compared to $1,875,600 for the first
quarter of 1998. The increase in operating expense is primarily due to
expanded operations resulting from the acquisition of VRI combined with
goodwill amortization of $409,800. Research and development expense increased
$681,100, or 56.3%, to $1,891,100 for the first quarter of 1999 compared to
$1,210,000 for the first quarter of 1998. The increase in research and
development expense is due to increased spending associated with the
Company's vaccine for the management of atherosclerosis combined with costs
attributable to the Company's Therapore(TM) and novel polymer vaccine
delivery system programs
7
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assumed in the acquisition of VRI. General and administrative expense
increased $304,200, or 45.7%, to $969,800 for the first quarter of 1999
compared to $665,600 for the first quarter of 1998. The increase is primarily
attributed to increased patent legal expense combined with increased
corporate development and administrative support costs.
Non-operating income increased $91,900, or 92.7% to $191,000 for the
first quarter of 1999 compared to $99,100 for the first quarter of 1998. The
increase is primarily due to an increase in interest income due to higher cash
balances for the first quarter of 1999 compared to the first quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company ended the first quarter of 1999 with cash and cash
equivalents of $10,983,100 compared to cash, cash equivalents and marketable
securities of $13,840,300 at December 31, 1998. The decrease in cash is
attributable to net cash used in operations of $2,382,400 combined with the
acquisition of property and equipment of $482,000 for the first quarter of 1999.
The Company believes that cash inflows from existing SBIR grants and
collaborations, interest income on invested funds and its current cash and cash
equivalents, net of restricted amounts, will be sufficient to meet estimated
working capital requirements and fund operations 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.
THE STATEMENTS IN THE FOLLOWING SECTION INCLUDE THE "YEAR 2000
READINESS DISCLOSURE" WITHIN THE MEANING OF THE YEAR 2000 INFORMATION AND
READINESS DISCLOSURE ACT.
YEAR 2000
THIS SECTION CONTAINS CERTAIN STATEMENTS THAT ARE FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS
AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THE
COMPANY'S YEAR 2000 COMPLIANCE, AND THE EVENTUAL AFFECTS OF THE YEAR 2000 ON THE
COMPANY MAY BE MATERIALLY DIFFERENT THAN CURRENTLY PROJECTED. THIS MAY BE DUE
TO, AMONG OTHER THINGS, DELAYS IN THE IMPLEMENTATION OF THE COMPANY'S YEAR 2000
PLAN AND THE FAILURE OF KEY THIRD PARTIES WITH WHOM THE COMPANY HAS A
SIGNIFICANT BUSINESS RELATIONSHIP TO ACHIEVE YEAR 2000 COMPLIANCE.
The "Year 2000" issue affects computer systems that have date sensitive
programs that may not properly recognize the year 2000. Systems that do not
properly recognize such information could generate data or cause a system to
fail, resulting in business interruption. The Company is currently developing a
plan to provide assurances that its computer systems are Year 2000 compliant,
and expects full compliance by the end of 1999. Given the relatively small size
of the Company's internal systems and the relatively new hardware, software and
operating systems, management does not anticipate any significant delays in
becoming Year 2000 compliant. Further, management believes at present that the
costs associated with modifications to become Year 2000 compliant will be
immaterial to the Company's continued internal operations.
The Year 2000 issue is expected to affect the systems of various
entities with which the Company interacts, including the Company's research
and development partners, suppliers and vendors. The Company's assessment of
third 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.
8
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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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
27 Financial Data Schedule
B. REPORTS ON FORM 8-K
None
9
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
T CELL SCIENCES, INC.
BY: /s/ Una S. Ryan
---------------------
Una S. Ryan, Ph. D.
President, and
Chief Executive Officer
10
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED FINANCIAL STATEMENTS OF AVANT IMMUNOTHERAPEUTICS, INC. FOR THE THREE
MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 10,983,100
<SECURITIES> 0
<RECEIVABLES> 3,800
<ALLOWANCES> (6,000)
<INVENTORY> 0
<CURRENT-ASSETS> 12,764,200
<PP&E> 4,503,800
<DEPRECIATION> (3,025,400)
<TOTAL-ASSETS> 19,677,300
<CURRENT-LIABILITIES> 3,118,700
<BONDS> 0
42,500
0
<COMMON> 0
<OTHER-SE> 16,002,100
<TOTAL-LIABILITY-AND-EQUITY> 19,677,300
<SALES> 0
<TOTAL-REVENUES> 337,900
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,270,700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (191,000)
<INCOME-PRETAX> (2,741,800)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,741,800)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,415,500)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
